Saturday, April 27, 2013

Publishing a Null Result

Tyler Cowen, a man much more intelligent than me, noted in the recent GDP release that a substantial part of the quarter's underperformace comes from defense spending cuts. He notes, correctly, that we should recognize this to be the best sort of underperformance, since the point of economic outputs is to ultimately make us happier (for a broad definition of happy), and bombs don't really do that.

So this set off my long dormant econ-alert alarms. Is this a thing which happens often? Have we underestimated how much the economy has recovered since the end of the crisis, especially considering the fact that the recovery coincidentally coincided with the drawdown in Iraq?

In order to answer that question I took a run to the BEA and grabbed the nominal GDP accounts going back to 1995. I then built a secondary GDP set that included the usual C+I+G+nX, but then subtracted out the defense spending breakout data to produce a Non-Defense GDP. I rather like this measure of national income as an aesthetic and philosophical choice, since the money we spend murdering foreigners does not improve the lives of US citizens, but the aesthetics are beside the point. Since 1995, have there been any differential trends between GDP and NDGDP?

The answer is no.

Click for bigger
There have been a few blips, and indeed the last two quarters have seen GDP growing more weakly than NDGDP, which tells us that anyone not paying attention is likely underestimating the nominal growth in the consumer economy, though only by .15% last quarter and about twice that in Q4.


2011 2012 2013

I II III IV I II III IV I
GDP %chg 0.54% 1.27% 1.06% 1.04% 1.03% 0.69% 1.45% 0.34% 0.92%
ND GDP %chg 0.71% 1.18% 1.05% 1.28% 1.13% 0.72% 1.34% 0.67% 1.09%

I conclude that this is not a trend, only an interesting tidbit from the GDP report. Which holds to our prior which says that if anything was happening it would have been noticed a long time ago by people smarter than me.

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