Growing Pains
I am returned from London, a city which I find impossible to navigate, as everybody seems to have a different opinion on the most efficient path from any point to any other. It’s no wonder that Becker’s tube map design is so highly regarded and has lasted so long – it provides an ounce of clarity to a twisted system.
Waiting to board my flight home, I listened to the local news anchor note that the BEA had revised their US GDP growth figure or the fourth quarter of 2008 from negative 6.1% to negative 6.2% (or thereabouts). What they failed to mention was that the US GDP did not decline by 6.2% in the fourth quarter, but rather it declined by the seasonally-adjusted annualized rate of 6.2%.
The difference is material: an annualized rate means the amount of decline if the economy kept the same trajectory for an entire year. Since we’re talking about a quarter of a year, we’re talking about a 1.55% decline, not a full 6.2%. 1.55% of the US GDP is nothing to scoff at, but certainly less alarming, numerically.
Furthermore, seasonal adjustment mean they subtract the average amount of growth due to seasonal fluctuation. In the case of the fourth quarter, this means they spread out the Christmas shopping spree across the rest of the year. So the nominal fall in GDP is likely less than 1.55%.
This is still a remarkable decline in such a short period of time, and something to be taken seriously. But we should understand exactly what these numbers are that talking heads throw at us.
