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Sunday, January 26, 2014

GDP: Annual and Q4-over-Q4

by Calculated Risk on 1/26/2014 10:48:00 AM

In my FOMC preview post yesterday, I wrote:

If Q4 GDP comes in at a the consensus (3.0% annualized real growth in Q4), then on a Q4-over-Q4 basis, real GDP will have increased about 2.7%.

Note: This is Q4-over-Q4 (what the Fed projects), not real GDP growth for 2013 over 2012 that is probably closer to 2.0%.
A few notes:

• The Bureau of Economic Analysis (BEA) reports real GDP growth on a seasonally adjusted annual rate (SAAR) basis. So this is adjusted for inflation (real), seasonally adjusted, and annualized.  Other countries report GDP differently - as an example China reports GDP growth on a year-over-year basis, and the UK reports GDP growth for each quarter, but not annualized.  A 3.0% annualized real growth rate in the US would be reported at 0.74% quarterly in the UK (not annualized).

• The FOMC GDP projections are for Q4-over-Q4.  Most analysts also project the annual GDP growth rate when looking ahead to the next year.

•  Calculating the Q4 GDP forecast: Using the consensus forecast of 3.0% real GDP growth in Q4, real GDP (2009 dollars) would be \$15,956.8 billion (SAAR) in Q4.  To calculate this, use Table 1.1.6. Real Gross Domestic Product, Chained Dollars at the BEA.  The BEA reported Q3 GDP was \$15,839.3 billion (SAAR).  Multiply this by (1.03 ^ .25) to calculate Q4 real GDP (2009 dollars, SAAR).

Calculating Q4-over-Q4 GDP growth: The BEA reported real GDP in Q4 2012 was \$15,539.6 billion (SAAR). So the Q4-over-Q4 growth rate would be \$15,956.8 (Q4 2013 forecast) divided by \$15,539.6 (Q4 2012). This would be 2.7%.

Calculating 2013 GDP growth: To calculated GDP growth for 2013, first we calculate the annual real GDP for 2013 (this is an average of GDP for the four quarters).  Using the forecast GDP for Q4, the 2013 annual GDP would be \$15,764.9 billion.   The annual real GDP (2009 dollars) for 2012 was \$15,470.7 billion.  So the 2013 annual growth rate would be \$15,764.9 (four quarter average using Q4 forecast) divided by \$15,470.7 (2012 real GDP). This would be 1.9%.

So it might be a little confusing when GDP is reported this week.  Some articles might report the Q4-over-Q4 growth rate that the FOMC is looking at - other articles might report 2013 over 2012.