GDP Statistics and the 2008 Election

Is it weird to link to Dean Baker three times over the course of three successive blog entries? Not when he comes out with stuff like this:

It is very likely that the third quarter GDP number will be negative. That may not mean very much in itself. GDP numbers are always somewhat erratic, and there is not much difference in the real world between a small positive and a small negative number. But, the 3rd quarter GDP figure will be released the Thursday before the election. It is the last major pre-election data release. Coming at that time, a negative number is likely to draw considerable attention.

It's a bold prediction, and it's based on the fact that inflation was higher in July than growth in consumption. As a result, he says, "consumption spending will show a decline for the second consecutive month".

If there's a problem with the prediction, it's that Baker's assuming that the GDP deflator -- the rate at which consumption is discounted in the GDP data release -- is going to be more or less the same as CPI. And as James Hamilton explains, that ain't necessarily the case. If the 0.8% inflation we saw in July was largely the result of price rises in imported goods rather than in goods manufactured domestically, it's not going to show up in the deflator.

All the same, there hasn't been a negative advance GDP number yet, and if the print comes in below zero it will spark a great deal of recession talk and political noise. I'm sure that Democrats and Republicans alike are getting their talking points ready, just in case.