What is the "Real" GDP? The Future of Social Security and Your Savings May Depend on the Answer.
source: http://advisorperspectives.com/dshort/updates/GDP-Deflators.php
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- Schnookums
- added this
How do you get from Nominal GDP to Real GDP? You subtract inflation. The Bureau of Economic Analysis (BEA) uses its own GDP deflator for this purpose, which is somewhat different from the BEA's deflator for Personal Consumption Expenditures and quite a bit different from the better-known Bureau of Labor Statistics' inflation gauge, the Consumer Price Index.
Now that we have the second update on Q2 GDP, I've updated my charts showing quarterly Real GDP since 1960 with the official and three variant adjustment techniques. The first chart is the official series as calculated by the BEA with the GDP deflator. The second starts with nominal GDP and adjusts using the PCE Deflator, which is also a product of the BEA. The third adjusts nominal GDP with the BLS (Bureau of Labor Statistics) Consumer Price Index for Urban Consumers (CPI-U, or as I prefer, just CPI).
As we might expect, the two deflators from the BEA produce similar results. The average (arithmetic mean) Real GDP for the first and second charts is the 3.1%. But note the variation from quarter-to-quarter and especially the weaker GDP since the end of the Great Recession in the PCE-adjusted version.
The CPI comes from a different government agency, the Bureau of Labor Statistics, and is calculated quite differently. As an inflation measure, it is much better known than the GDP and PCE deflators, and its growth rate has been higher than the two BEA metrics (see this illustration). If we use CPI as the deflator to compute Real GDP, we see series with a significantly lower mean, higher volatility, and Q2 Real GDP at a stunningly negative -3.4%.......
For more charting, continue at:
http://advisorperspectives.com/dshort/updates/GDP-Deflators.php
Now that we have the second update on Q2 GDP, I've updated my charts showing quarterly Real GDP since 1960 with the official and three variant adjustment techniques. The first chart is the official series as calculated by the BEA with the GDP deflator. The second starts with nominal GDP and adjusts using the PCE Deflator, which is also a product of the BEA. The third adjusts nominal GDP with the BLS (Bureau of Labor Statistics) Consumer Price Index for Urban Consumers (CPI-U, or as I prefer, just CPI).
As we might expect, the two deflators from the BEA produce similar results. The average (arithmetic mean) Real GDP for the first and second charts is the 3.1%. But note the variation from quarter-to-quarter and especially the weaker GDP since the end of the Great Recession in the PCE-adjusted version.
The CPI comes from a different government agency, the Bureau of Labor Statistics, and is calculated quite differently. As an inflation measure, it is much better known than the GDP and PCE deflators, and its growth rate has been higher than the two BEA metrics (see this illustration). If we use CPI as the deflator to compute Real GDP, we see series with a significantly lower mean, higher volatility, and Q2 Real GDP at a stunningly negative -3.4%.......
For more charting, continue at:
http://advisorperspectives.com/dshort/updates/GDP-Deflators.php
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- groups:
- Community, Politics, Business News & Analysis
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- tags:
- Inflation, Social Security
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Schnookums
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I find it odd that this made it to the "Popular" top 20, but no one commented on it. How did that happen?
- 9 months ago
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Schnookums
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Schnookums
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File this away and remember it when the talk turns to "chained" CPI deflators by the SuperCongress this fall and Social Security cuts.......
- 9 months ago
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Schnookums
