In the fourth quarter of 2008, which immediately followed the 2008 financial crisis, economic activity fell sharply. BEA’s initial, or “advance” estimate of GDP for the quarter, which was released on January 30, 2009, showed a decrease of 3.8 percent at an annual rate. In the second estimate, which was released on February 27, 2009, the revised estimate showed a decrease of 6.2 percent. Since then, the estimate has been revised several more times (in March 2009, July 2009, July 2010, and July 2011), and the latest estimate shows a decrease of 8.9 percent.
BEA’s advance GDP estimates are among the timeliest in the world, but BEA also emphasizes (as stated in the second paragraph of each advance GDP news release) that they “are based on source data that are incomplete or subject to further revision by the source agency.” For advance estimates, three months of source data are generally available for consumer spending on goods, shipments of capital equipment other than aircraft, motor vehicle sales and inventories, manufacturing durables inventories, federal government outlays, and consumer, producer, and international prices. Only two months of data are available for nonresidential, single family, multifamily, and state and local construction, manufacturers’ shipments of complete aircraft, manufacturing nondurables inventories, merchant wholesale and retail inventories (other than motor vehicles), exports, and imports. For these series, BEA makes assumptions for the missing data for the third month and publishes these assumptions in the “Technical Note” that accompanies the GDP news release.
For the advance estimate of 2008:Q4, BEA’s assumptions for the missing data for December 2008 were mostly based on the trends for these series based on data for September, October, and November. For example, according to the Census Bureau data available at the time, manufacturing nondurables inventories had decreased an average of $53.3 billion (annual rate) over those 3 months; BEA’s assumed decrease for December was $69.6 billion.
When actual source data for December 2008 became available after the release of the advance GDP estimate, many of these series showed much larger decreases in December than BEA had assumed. For example, manufacturing nondurables inventories decreased $114.9 billion, rather than $69.6 billion. In some cases, revisions to the published source data that had been incorporated in the advance estimate also contributed to the revision. The sources of the downward revision from the advance estimate of -3.8 percent to the second estimate of -6.2 percent are described in an article in the Survey of Current Business and include revisions to inventory investment, exports, and consumer spending, reflecting newly available and revised source data.
Because BEA is transparent about its assumptions and publishes them along with the advance estimate, forecasters are able to update their GDP forecasts as missing source data become available by comparing them to the BEA assumptions. Consequently, the large downward revision to GDP that was published in February 2009 was largely anticipated by economic forecasters and analysts.
In subsequent annual and comprehensive revisions, additional source data were incorporated that are more complete, reliable and detailed than the data that were available for the early estimates. For example, in the 2011 annual revision that was released on July 29, 2011, data on consumer spending from the Census Bureau’s 2009 Annual Retail Trade Survey were incorporated and showed that consumers had reduced their spending more than indicated in BEA’s previous estimates. In addition, during these revisions, BEA made methodological changes that improved the accuracy of the estimates. For more information on the most recent revisions, see the FAQ “How did the recent GDP revisions change the picture of the 2007–2009 recession and the recovery?” In addition, a table showing revisions and major source data is available. Also, an article in the August Survey discusses the results of this year’s revision in more detail.