On Wednesday, the US Bureau of Economic Analysis will release its advance estimate of US GDP for the three months ended in March. There are significant differences in presentation between US and Australian official data on economic activity that need to be kept in mind when seeking to understand the numbers coming out of the United States.
Wednesday’s release is an advance estimate. The United States releases each quarter’s GDP number three times, with each release edging closer to the final estimate. The intent behind the staggered release is to improve the timeliness of the data, at some cost in initial accuracy.
The median market economist is expecting a contraction of 3.8 per cent on an annualised basis following a 2.1 per cent expansion in the previous quarter. The St Louis Fed GDP nowcast points to a 15 per cent contraction.
This sounds like a bigger contraction to an Australian audience than it actually is. Australia reports its GDP data as a quarter on quarter change. The United States, by contrast, assumes that the same quarterly growth rate applies over four quarters or a full year. In other words, the expected contraction of 3.8 per cent annualised is approximately four times larger than the headline measure that would be reported in Australia. This is still a bad outcome, but not as dramatic as it might sound to an Australian audience unfamiliar with US reporting conventions.
In principle, any growth rate can be annualised, but it makes little sense to assume that each quarter of the year will grow at the same rate as the current quarter. This is especially so when measuring the economic impact of COVID-19, which is likely to have a highly variable impact depending on what suppression measures are in place in any given quarter.
The Q1 GDP report will pick-up only the initial impact of the suppression measures that went into place towards the end of the quarter. The larger impact will be in the second quarter, for which the New York Fed nowcast is for a contraction of -7.8 per cent.