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Bureau of Economic Analysis Releases Astounding Downward GDP Revision

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The BEA has concluded that the U.S. Economy shrunk by almost 3% in the first quarter of 2014 ,which is very bad. This rate of contraction is the worst seen since the first quarter of 2009, which was a very bad economic quarter by any indication. The suggestion that the Obama Administration has achieved even moderate stabilization of the economy is on increasingly thin ice. The news is bad virtually all around, according to the WSJ:

The economy’s first-quarter stumble has once again dashed hopes the recovery was in the process of switching into a higher gear. Early second-quarter data indicates the economy has improved this spring as warmer weather helped release some pent-up demand. Macroeconomic Advisers recently forecast the economy will grow at a 3.6% annual rate in the April to June period.

But the depth of the first-quarter decline in output means growth over the first six months of the year likely fell below the economy’s average rate of just over 2% since the economy emerged from recession in June, 2009. That is below the U.S. economy’s longer term growth rate of just over 3%.

Five years into the recovery, high unemployment and stagnant incomes continue to restrain consumer spending, which accounts for more than two thirds of U.S. economic output. Consumer spending grew by a 1% pace in the first quarter, revised down from the previous estimate of 3.1%. Commerce said the downward revision was primarily the result of weaker health-care spending, though it also revised lower its estimate of spending on goods.

Quite apart from the awfulness of the economic news itself, I’m concerned and suspicious about the size of the adjustment itself. A difference of 3% in GDP is the difference between a healthy economy and a recession. Obviously I’m not privy to the raw data that make up the calculation and wouldn’t be able to perform it myself even if I were, but the question does need to be asked about how, if at all, we are supposed to trust the future projections that would suggest that the economy is going to grow again in the second quarter?

And more importantly, given this administration’s known pattern for suspicious revisions to economic numbers that occur after elections, what shenanigans can we expect in terms of bogus economic/employment numbers as the midterms approach?

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