Statistics In Disconnect With Reality
Yet if you look at the official GDP numbers, Gramm does not seem to be off the mark, at least not with that "mental recession" part. John Berry on Bloomberg News predicts that the Q2 U.S. GDP number will show 2.5% growth. And while I think it will come in lower than that, it will likely be closer to 2.5% than 0%.
But exactly where do you see that growth? I mean, with employment, real wages and profits falling, that GDP number seems to be out of touch not just with the public's perception of their economic situation, but also with all other available information of the economy.
There are several explanations for this, but the most important one is the factor I discussed in detail here. John Berry notes that rising net exports will be the most important factor behind the predicted growth. But here we notice something very fishy. Trade data for June is not yet available, but the average trade deficit for April and May was $60.1 billion. By contrast, during January to March, the average trade deficit was $58.3 billion. Unless we assume a real dramatic decline in the trade deficit in June (which is highly unlikely), then we will thus see a significant increase in the trade deficit between the first and the second quarter. But rising net exports is by definition supposed to imply a lower trade deficit, and certainly not a higher trade deficit.
However, in the flawed way the Bureau of Economic Analysis calculate GDP, the actual trade deficit is irrelevant. Instead they assume that sharp increases in import prices do not lower purchasing power and calculate exports and imports by volume. And according to that methodology, the average trade deficit for April and May was just $45.1 billion, down from $49.5 billion during January to March. That means that trade could add as much as 2 percentage points to GDP, even tough the actual trade deficit will be increasing!
This will again illustrate how flawed the current GDP methodology is, and it also explains the disconnect between GDP numbers and the economists who take them at face value, such as Phil Gramm, and the dismal economic reality that most Americans experience.