In my previous blog on Gross Output, I discussed how GDP is not the final word when it comes to measuring the economy. This might be nothing more than an academic point if there wasn’t more to the story. I believe there is.
The chart below shows the annual percent change in Gross Output, Intermediate Inputs and GDP (in 2008 dollars). The most important feature to note is that Intermediate Inputs are the most volatile of the three. They reach the highest highs and lowest lows. So it seems to better understand the severity and duration of downturns, we also need to better understand what’s going on with intermediate inputs.
Also, note what seems to be happening most recently in 2008. Unlike the previous two recessions in 1991 and 2001, GDP is falling and Intermediate Inputs are rising. It’s too early to say what this may be about, it could simply be a data issue that will be revised away. Or it could be a sign of the unique nature of this recession where consumers were able to retrench faster than, say, home builders. Time will tell.
Unfortunately, if Intermediate Inputs are more important to determining the business cycle than GDP, we won’t know it until after the fact because this data series from the Bureau of Economic Analysis is not published with nearly the same frequency as GDP. Not all of it is BEA’s fault, the amount of extra data that must be collected must be astounding.
More to come . . .