On Thursday July 30,
2015, the Bureau of Economic Analysis announced the advance estimate for
economic growth rate during the second quarter, and the revised estimate for economic growth during the first quarter. At first sight, the results were
mixed. The annualized growth rate for Q2, 2.3%, fell short of (Econoday consensus) expectations,
2.9%. However, the revised growth rate for Q1, 0.6%, exceeded its advance
figure, -0.2%.
In order to assess the
disclosed information, one needs to evaluate two scenarios, pre- and post-announcement.
Prior to the announcement, the growth scenario was -0.2% in Q1 and +2.9% in Q2.
After the announcement, the growth scenario is +.6% in Q1 and +2.3% in Q2.
An annualized growth
rate of -0.2% implies a quarterly growth rate equal to -0.05%—(1-.002).25.
Similarly, the annualized growth rate of 2.9% means that the quarterly rate is
0.72%. If the US economy grew at a rate of -0.05% during Q1 and, then, at a
rate of 0.72% during Q2, then, it grew at a rate of 0.67% during the first six
months—(1-.0005)(1+.0072). Therefore, according to the pre-announcement scenario, the annualized growth rate is 1.34%. (Figures may be off due to rounding error.)
On the other hand,
annualized growth rates 0.6% and 2.3% represent quarterly growth rates equal to
0.15% and 0.57%, respectively. Thus, if the economy grew at a rate of 0.15%
during Q1 and 0.57% during Q2, its growth during the first two quarters is
0.72%. Following the post-announcement scenario, as a result, the annualized growth rate is 1.45%.
In sum, the information
the BEA disclosed on July 30, 2015 implies improved economic activity in the
US.
