Today’s preliminary estimate of gross domestic product in the second quarter can create confusion. Ben Casselman explains how to understand the number::
In the United States, G.D.P. is not reported as a simple change from one quarter to the next. It is given as an annual rate. (Technically, a seasonally adjusted annual rate.) Think of it this way: If this rate of change remains constant, this is how much G.D.P. would grow or shrink over an entire year.
A negative annual growth rate of 35 percent would mean that economic output in the second quarter was 10.2 percent lower than in the first. (It’s not so easy to divide the annual rate by four as the growth rates increase.)
Viewing things on an annual basis can be useful because it is easy to compare data collected over different time periods. You have probably performed a version of this calculation yourself! “OK, if I cut out my $ 4 daily latte, I would save $ 1,000 a year.”
However, when annual rates are applied to short-term or one-time changes, they can be misleading.
The economy is currently experiencing many short-term fluctuations. The developments are real and important – but there is little point in annualizing them.
For this reason, The Times plans in our reporting tomorrow to highlight the simple, non-annual transition from the first to the second quarter. We continue to provide the annualized number for those who are used to seeing it this way, as well as other relevant numbers such as B. the change compared to the previous year.
This approach will make the change in the second quarter look milder than if we had used the annualized number. We plan to do the same in the next quarter if this (presumably) reduces the rebound. In both cases, however, we believe that this will communicate more clearly what is happening in the economy.