• 2 hours Alberta’s Unlikely Alliance With The Nuclear Industry
  • 20 hours The True Cost Of Opportunity In America
  • 1 day Why Investors Shouldn't Ignore Gold Stocks
  • 2 days Facebook Scrubs Over 2 Billion Fake Accounts
  • 2 days Dow Scrambles To Avoid Fifth Straight Weekly Loss
  • 3 days Is This The World’s First Truly Democratic Stock Exchange?
  • 3 days India’s Wealthiest Set To Hold $23 Trillion By 2028
  • 3 days First Quarter Profits Slip For World's Top Oil Companies
  • 3 days The Yuan May Be China's Biggest Weakness
  • 4 days Hedge Funds Having A Banner Year
  • 4 days Disney Heiress Asks “Is There Such A Thing As Too Much?”
  • 4 days BHP Turns Bullish On EVs
  • 4 days Investors Turn Bullish On America’s Nuclear Decommissioning Business
  • 5 days The $90M Inflatable Rabbit Redefining Modern Art
  • 5 days Huawei’s Fate In The Air
  • 5 days Tesla Slashes Prices Again
  • 5 days The Modern History Of Financial Entropy
  • 6 days Italy’s Central Bank Embraces Sustainable Investing
  • 6 days Trump Lifts Metals Tariffs To Cool Simmering Trade War
  • 6 days Researchers Push To Limit Space Mining
Strong U.S. Dollar Weighs On Blue Chip Earnings

Strong U.S. Dollar Weighs On Blue Chip Earnings

Earnings season is well underway,…

Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

  1. Home
  2. Markets
  3. Other

Investigating The GDP Deflator: Wildly Differing Results Depending on Your Choice

As noted in Real Q1 GDP 0.2% vs. Consensus 1.0%; Disaster in the Details I got the first quarter GDP forecast details correct.

However, a bit of self-assessment with differing GDP deflators shows my prediction of close to zero growth could easily have looked rather silly.

I asked Doug Short at Advisor Perspectives what the GDP would have looked like using various deflators:

  1. GDP (Implicit GDP Deflator)
  2. PCE (Personal Consumption Expenditures)
  3. CPI (Consumer Price Index)
  4. Shadowstats (Williams' Alternate CPI)

Charts are shown below.

Both Doug and I consider Shadowstats absurd, but we include it because many follow the number. For a recent critique of the measure please see Deconstructing and Debunking Shadowstats.


GDP Implicit Deflator (Official GDP)

GDP Implicit Deflator (Official GDP)


GDP with PCE as Deflator

GDP with PCE as Deflator


GDP with CPI as Deflator

GDP with CPI as Deflator


GDP with Shadowstats CPI as Deflator

GDP with Shadowstats CPI as Deflator


Results

  1. GDP (Implicit GDP Deflator): 0.2%
  2. PCE (Personal Consumption Expenditures): 2.2%
  3. CPI (Consumer Price Index): 3.3%
  4. Shadowstats (Williams' Alternate CPI): -1.2%

Depending on your price deflator, GDP was between -1.2% and +3.3%. If you toss out Shadowstats, then the range is 0.2% to 3.3%.

That's still a damn wide range. People accuse the BEA all the time of manipulating the deflator to make things look good, but if they easily could have done that this month for far better results.

Over time, GDP is highest with the PCE and GDP implicit deflators. At least the BEA is consistent.


Mean GDP

  1. GDP (Implicit GDP Deflator): 3.26%
  2. PCE (Personal Consumption Expenditures): 3.32%
  3. CPI (Consumer Price Index): 2.93%
  4. Shadowstats (Williams' Alternate CPI): 0.79%

Next quarter, because of rising energy prices, deflating GDP by the CPI will likely yield worse results than the GDP deflator. Some people will criticize the BEA because of it, while remaining silent about this quarter.

As it stands, rising energy prices and the strong dollar will place downward pressure on second quarter GDP no matter which deflator one uses.

 

Back to homepage

Leave a comment

Leave a comment