How Fast is the Economy Growing?

HOW FAST IS THE ECONOMY GROWING?….The BEA announced today that GDP increased 2.4% in the second quarter. That’s better than predicted and generally good news.

However, General Glut points out an interesting anomaly. First, here’s how the increase was calculated:

  • First quarter GDP was $9,552 billion

  • Second quarter GDP was $56.1 billion higher.

  • That’s an increase of .587%.

  • Multiply by 4 (actually a bit more than 4) to get the annualized rate and it’s a 2.36% increase, which gets rounded off to 2.4%

But here’s an interesting factoid: the war in Iraq provided a one-time spike in defense spending (and therefore GDP) of about $40 billion, all of it deficit spending. Without the war, GDP would have increased by only $16 billion, an annualized rate of .67%. That’s not so hot.

So, um, are we going to have another war this quarter to keep the numbers up?

UPDATE: As it turns out, this crude analysis overstates the effect of the war. More details here.

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