February 11, 2009
Estimated Output Gap, post Trade, Inventory Releases
The picture says it all, but here's the quote from RealTime Economics "Fourth Quarter Looking Worse Every Day":
Yesterday, wholesale inventory numbers came in smaller than expected, prompting economists to revise down fourth-quarter GDP estimates a bit. But a much bigger adjustment is likely in store thanks to today's data on trade.
The trade deficit for December was wider than anticipated, and economists estimate it will shave up to 0.9 percentage point off of the fourth-quarter number. "These figures were much worse than BEA assumed in preparing the advance fourth quarter GDP estimate," said Morgan Stanley economist Ted Wieseman, who now expects fourth quarter GDP to be revised down to a 5.2% decline. That figure was in line with other estimates from J.P. Morgan, Macroeconomic Advisers, IHS Global Insight and RDQ Economics, who all expect the number to be around 5%.
So...using the midpoint estimate, here is a picture of what output looks like relative to potential, as estimated by CBO in January. The output gap in 2008Q4 is now 4.1 ppts (in log terms).
Figure 1: Log real GDP, from 30 Jan 2009 preliminary release (blue), potential GDP (black), WSJ mean forecast from January survey (green), mean forecast (red) as related in RTE blogpost (2/11/09). Source: BEA NIPA Q4 advance release [link], CBO estimates of 9 Jan 2009, WSJ survey of forecasters from January [link].
The February WSJ survey is not yet out, but I presume that it will reflect some downward revisions in the path, relative to potential, which would indicate an output gap that is bigger than the 6 ppts of GDP gap at end-2009. (Remember, this mean forecast was conditional upon some sort of stimulus bill, so passage of the bill would not necessarily push up forecasted output.)
I've just noticed that according the St. Louis Fed's "Tracking the Recession" webpage, three of the four NBER BCDC series are now at performing as bad or worse than that in the past six recessions. The sole exception is income, which is at the average level recorded in the past six recessions, at 12 months post-peak.
Posted by Menzie Chinn at February 11, 2009 01:03 PMdigg this | reddit
Output gap or previous trend?
The previous output number came in when gasoline was approaching $5/gallon. We know the consumer did not accept the price.
So, simply restoring the economy to stable gas prices will result in a likely lower output potential.
Posted by: MattYoung at February 11, 2009 02:27 PM
What Matt Young said: didnt Jim Hamilton just tell us last week that potential GDP growth was negative?
The failure of the intermediation process has shocked TFP downward.
Posted by: PCLE at February 11, 2009 03:18 PM
Matt Young and PCLE: The growth rate of potential GDP must indeed be very negative in order for the output gap to be shrinking in absolute value -- -5% on an annualized basis, to be exact...
Posted by: Menzie Chinn at February 11, 2009 03:29 PM
Can you give us a breakdown of Real Income and Real Retail Sales versus nominal levels? The nominal level declines are staggering. Are we in a deflationary spiral?
Posted by: JD at February 12, 2009 07:30 AM