Trump’s GDP Puffery

President Donald Trump wrongly described the estimated 2.6 percent growth in the nation’s gross domestic product for the second quarter as “a number that nobody thought they’d see for a long period of time.”

In fact, real GDP growth was higher than 2.6 percent in eight of the last 18 quarters, according to data from the Bureau of Economic Analysis. That includes a 2.9 percent increase in the third quarter of 2016, which the Trump campaign dismissed at the time as “modest.”

Also, the 2.6 percent rate of growth in the second quarter was not unexpected. Some economic models forecast higher growth. The Federal Reserve Bank of Atlanta, for example, initially forecast in May that the second quarter GDP growth would be 4.3 percent.

Trump’s GDP puffery came during a Cabinet meeting on July 31 in which he boasted about an array of economic accomplishments since he took office.

Trump, July 31: We have a GDP, on Friday — it got very little mention, although I guess in the business areas it did. But it got, I think, very little mention. 2.6 is a number that nobody thought they’d see for a long period of time. Remember, I was saying we will hit three at some point in the not-too-distant future, and everybody smiled and they laughed and they thought we’d be at one. And 2.6 is an unbelievable number, announced on Friday.

Trump was referring to an “advance” estimate announced by the Bureau of Economic Analysis on July 28 that real GDP increased at an annualized rate of 2.6 percent in the second quarter of 2017. That’s up from a revised estimate that the GDP rose 1.2 percent in the first quarter of the year.

Although Trump claimed 2.6 percent quarterly growth “is a number that nobody thought they’d see for a long period of time,” it is actually substantially lower than what the Federal Reserve Bank of Atlanta’s GDPNow forecast model initially predicted for the second quarter — 4.3 percent — back on May 1. That forecast was subsequently revised down over time, but was at 2.8 percent on the day before the BEA announced its advance estimate.

On March 3, the Federal Reserve Bank of New York initially projected a 2.91 percent GDP growth in the second quarter, although the projection fell to around 2 percent during the last month.

Similarly, the Blue Chip Consensus on March 15 estimated the real GDP growth in the second quarter at 2.5 percent — almost exactly where it ended up. That forecast rose to 3 percent on June 13. Wolters Kluwer’s Blue Chip Economic Indicators reflect the forecasts of 50 economists.

Mark Zandi, the chief economist at Moody’s Analytics, told us his firm’s October 2016 outlook for the U.S. economy projected 2017 second quarter real GDP growth at 2.9 percent.

“The actual gain of 2.6 percent is not materially different,” Zandi said. “We also had assumed that Clinton would win the election.”

One caveat: The BEA “emphasized” that its second quarter advance estimate was based on “source data that are incomplete or subject to further revision by the source agency.” Harvard professor Jason Furman, who served as chairman of the Council of Economic Advisers under former President Barack Obama, told Politico that the advance estimate is “notoriously volatile” and “has a substantial guess component to it.” BEA said its “second” estimate for the second quarter will be released on Aug. 30 and will be “based on more complete data.”

Furman also warned that it is a mistake to “read too much into any one quarter’s GDP data.”

As Politico noted, “In recent years, the U.S. economy has often started off slowly, improved in the middle of the year, only to sag again toward the end. … It grew at 5 percent in the third quarter of 2014 before sputtering out.”

According to BEA data, real GDP grew at a higher rate than 2.6 percent in eight of the last 18 quarters, as the chart below shows. (Click on the chart to see a larger image.) From 2013 to 2016, real GDP increased at an average annual rate of 2.3 percent. That’s identical to the annual growth the Blue Chip Consensus forecast in March for the entirety of 2017.

“No, 2.6 percent is not an unbelievable number that no one thought we’d see for a long time,” Zandi told us. “What few believe is that we will see 3 percent growth on a sustained basis, not for a quarter or two or three.”

“It is important to note that real GDP growth in the first quarter was only 1.4 percent,” Zandi said. (It was actually revised down to 1.2 percent in the BEA’s recent advance estimate.) “Thus real GDP growth during the first half of the year was 2 percent, almost precisely the growth the economy has experienced since this economic expansion began eight years ago.”