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GDP Should Be Reported With Annual Rates
People reading the NYT article on European economic growth saw that GDP in France grew by just 0.3 percent in third quarter, by 0.7 percent in Germany, and by 0.4 percent for the euro zone countries taken as a whole. If that sounds very weak, it is because these numbers are expressed as quarterly growth rates, which is the standard practice in Europe.
However, in the United States, the standard practice is to express GDP growth numbers at annual rates. No one ever reports GDP as a quarterly growth rate. Since the point of the news story is to provide accurate information to readers, why not just report the European growth numbers as annual rates? Multiplying by four will do the trick. (Actually, we should take the growth number to the fourth power, but for these numbers the result will be the same.) There is no excuse for not reporting data in the way that makes it most understandable to readers.
--Dean Baker
COMMENTS (6)
Actually, the number that you want to take to the fourth power is not the rate r, but 1+r. You then want to subtract one from the result.
Sorry, about being a nitpick... you do great work.
Posted by: veblen | November 14, 2009 10:41 AM
Thanks for the good hint on annualized versus quarterly growth rate.
The last paragraph of the article was consistent:
"The American economy also recovered from recession during the third quarter; the country’s G.D.P. expanded at an annualized rate of 3.5 percent. By comparison, on an annualized basis, the euro area economy grew by about 1.6 percent during that period."
The German calculations:
1.007 ^ 4 = 1.0283 = 2.83 %
.007 * 4 = .028 = 2.8 %
Posted by: Anonymous | November 14, 2009 10:46 AM
Since the point of the news story is to provide accurate information to readers
Interesting idea about the purpose of news stories. Do you have any evidence to support it?
Posted by: foosion | November 14, 2009 10:47 AM
A Serious Question, Younger People Will Think is Facetious -
Do the Post reporters know the difference? Do most economists understandthe difference.
SS
Posted by: SS | November 14, 2009 5:26 PM
"There is no excuse for not reporting data in the way that makes it most understandable to readers."
Unless the intended reason is confusion.
The Great State of Confusion chooses to opt out.
Posted by: Scott ffolliott | November 14, 2009 7:29 PM
Actually, what you want to do is use the European style of reporting. ;)
If you want to talk about the yearly growth rate, base it on the yearly difference. Mathematically massaging the quarterly growth rate is a) ambiguous and b) potentially misleading, as it makes it seem bigger than it is. It represents neither the historical growth rate of the past year nor the projected growth rate of the next.
Posted by: Min | November 15, 2009 11:18 AM