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The most recent advance estimate of gross domestic product by the Bureau of Economic Analysis said that real GDP declined at an annual rate of 1 percent during the second quarter of 2009. This estimated decline in the output of goods and services produced within the United States is less severe than the 6.4 percent decrease that took place in the first quarter of the year. These numbers, however, should be taken with a grain of salt. Advance estimates of GDP are revised, often substantially.
Quarterly estimates of GDP are released on the following schedule: Advance estimates, based on preliminary and incomplete source data, are released near the end of the first month after the end of the quarter. As more detailed and comprehensive data become available, the BEA releases preliminary estimates a month later and final estimates a month after that. So-called latest estimates can be published years later. They reflect the results of both annual revisions and comprehensive revisions, which are carried out at five-year intervals. The most recent comprehensive revision was this summer. The table below summarizes the magnitudes of the revisions to quarterly estimates of percent changes in real GDP. The revisions that fall within the range of two-thirds of all revisions are fairly likely. The revisions that fall outside of the range of nine-tenths of all revisions are unlikely. Revisions between Quarterly Percent Changes of Real GDP: Vintage Comparisons
(Annual Percentage Rates) | | | | Range | Estimates Compared
| Average Revision Without
Regard to Sign
| Two-thirds of Revisions
| Nine-tenths of Revisions | Advance to Preliminary
| 0.5 | -0.3 to 0.5
| -0.6 to 0.8 | Advance to Final
| 0.6 | -0.3 to 0.5
| -0.6 to 0.8 | Preliminary to Final
| 0.3 | -0.2 to 0.2
| -0.3 to 0.3 | | Advance to Latest | 1.2 | -0.7 to 1.3
| -1.3 to 1.9 | | Note: These comparisons are based on the period from 1983 to 2005. | Source: Bureau of Economic Analysis (BEA) Given the information in the table, what does the advance estimate of a 1 percent decline in GDP in the second quarter of 2009 really tell us? By the time the final estimate is released (at the end of September) the growth rate of GDP could easily be revised to anywhere between -1.3 and -0.5 percent. Once the annual and comprehensive revisions take place, the number could become anywhere between -1.7 and 0.3 percent. (In rare cases, revisions could be even larger.) In other words, it is possible that the advance estimate of a 1 percent decline in GDP could be revised to show a mild increase in GDP. At this point, we can't even be sure that real GDP in the second quarter of this year declined. But one conclusion is reasonable: Even after the revisions, the GDP growth in the second quarter is likely to be better than the 6.4 percent decline observed in the first quarter of this year.
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