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1/ The GDP figures you are seeing today represent an ANNUALIZED drop of -33%
A less scary figure: Q2 output was about 10% lower than Q1 output
So where did the 1st number come from?
a mini thread
A less scary figure: Q2 output was about 10% lower than Q1 output
So where did the 1st number come from?
a mini thread
2/ That scary number shows how much GDP would grow or shrink if that rate was sustained for a full year
Annualized figures are helpful when comparing data across historical periods
but can be misleading when looking at short term changes
Annualized figures are helpful when comparing data across historical periods
but can be misleading when looking at short term changes
3/ For example, if you got a $1,000 bonus one month
you certainly wouldn't say "I got a $12,000 raise on an annualized basis!" cuz you know it's not actually a sustained bonus
same for GDP numbers
you certainly wouldn't say "I got a $12,000 raise on an annualized basis!" cuz you know it's not actually a sustained bonus
same for GDP numbers
4/ The economy didn't actually shrink by nearly a third in three months
but the annualized formula—which takes into account compounding effects—is always going to paint a more fatalistic picture when GDP contracts
especially when faced with huge short term changes
but the annualized formula—which takes into account compounding effects—is always going to paint a more fatalistic picture when GDP contracts
especially when faced with huge short term changes
5/ You'll see a lot of that -33% number being tossed around today
but take it with an annualized grain of salt
but take it with an annualized grain of salt
