Thursday, September 27, 2012

A bad GDP revision that's actually good

So today they released a revised GDP growth rate for the Spring quarter that was 1.3%, down from an initial estimate of 1.7%.  The revision was blamed mainly on the heat/drought that devastated crop production in the Midwest.

Now, that crop devastation was bad news for the world as a whole, but I'm not so sure it was bad for the narrow interests of the US. We're the world's largest exporter of staple food commodities, and commodity prices went up a whole lot as a result of the losses. Further, those higher crop prices will stick around at least until next year, boosting farm incomes considerably.  So, ironically, the U.S. is probably better off as a result of a bad harvest. Real GDP doesn't reflect the price benefit of exports because real GDP holds prices fixed at a baseline level, so it just measures the physical losses of the crop.

This is quite unusual, I think, for a downward revision of this magnitude to actually be a good thing.  But let me emphasize again:  that's good for the US, not the world as a whole.

Anyhow, since the revision really had to do with the weather and not general recovery, probably only helps the financial position of people living here, and the revision in job counts was all positive, I'm not surprised the stock market went up.

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