Chances of More Negative GDP Readings

Via Felix, it looks like that BusinessWeek's Michael Mandel is very pessimistic about the 1st half of this year:

In my view, this process of downward revision of the stats for 2007 and 2008 will continue over the next several years. It takes that long for all the source data to catch up (for example, tax return data for 2008 is not available until mid 2009 or even later). By the time that the data revisions are done, it will be clear that GDP growth in the first half of 2008 was negative, despite what the stats say now.

In other words, I believe that the statistics will eventually show that we are in a recession now, no matter what the official data says now.

It's hard to disagree with Mandel's second point, especially since the statistics are already pretty much showing that we're in a recession. It also helps when the NBER's former president said as much to the WSJ's Sudeep Reddy earlier this week:

Harvard professor Martin Feldstein, president of the NBER until this month, says the nation has been "sliding into a recession" since January, when many monthly statistics peaked. But a GDP decline isn't necessary "if there is enough other evidence that the economy is contracting," Mr. Feldstein says.

But Mandel's first point is largely at odds with recent history. There's little doubt that the advance GDP reading we got today will be revised next month. Today's release included revisions that went back to 2005, and the average revision from the advance nominal figures to the latest nominal figures was 1.1 percentage points with a standard deviation of 0.9 percent. So that would seem that a revision from 1.9 percent -- the advance reading on Q2 GDP -- down to -0.1 percent is not out of the question.

But research by BEA economists looking at growth figures between 1983 and 2002 found that the advance and the latest GDP figures were in agreement in terms of the direction of economic growth 98 percent of the time. We did just see how that relationship failed with the Q4 revision of GDP from 0.6 percent to -0.2 percent, but how likely is it that we'll see a similar revision from 1.9 percent?

This is all mostly mental masturbation -- econwatchers' version of box score-reading -- but who said box score-reading wasn't fun?

UPDATE
Some more back and forth on this. Monthly GDP figures from e-forecasting indicate that GDP fell for three straight months between April to June. So their quarterly GDP figure for Q2 is -0.5 percent compared to the BEA's 1.9 percent.

Over at Econbrowser, Jim Hamilton says his Recession Indicator Index shows that we're not yet in a downturn:

I have developed an algorithm (described here and in more detail here) that looks at the full history of GDP data to refine that rule a little, based on a simple pattern-recognition procedure. Given the revisions in the data (and the great usefulness of having more than one quarter's data to identify the most recent trend), I only use this to make a call as to where the economy was in the previous quarter. With the latest release of the 2008:Q2 GDP numbers, I've now calculated our recession indicator index for 2008:Q1, which turns out to be 38.4%. Based on a historical analysis of the algorithm, I would not declare a recession to have begun unless the indicator rises above 66%. So my current assessment is that a U.S. recession had not yet started as of 2008:Q1.

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