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Posted 08.26.2010

Smith and Jones talk economic growth

Just two pals mulling the data

By Jeff Thredgold

During the past 35 years of writing a weekly economic, financial, and (sometimes) political newsletter, I have periodically tried to present information in an unusual format so as to make "the dismal science" less intimidating and more interesting. Over the years, we have occasionally run a discussion between two old friends -- Mrs. Smith and Mr. Jones -- regarding a variety of issues. Their topic of discussion today is the latest data regarding U.S. economic growth, and important revisions to the data of the past three years.

"I am really confused by all these numbers and statistics about the economy that have been in the news in recent days," stated Mr. Jones. "What the heck is GDP, and what does it have to do with me?"

"GDP, or Gross Domestic Product, is an estimate of the value of all goods produced and services provided inside U.S. borders, measured as an annual growth rate or annual rate of decline, with the impact of inflation removed. It is provided by the U.S. Commerce Department," Mrs. Smith said.

"For example," continued Mrs. Smith, "the U.S. economy grew at a 2.4 percent real (after inflation) annual rate during 2010's second quarter, just slightly less than expected. In addition, all of the U.S. economic data of the past three years was revised, in some cases for the fifth time, to more accurately reflect what is happening in the American economy."

"That could really be confusing," noted Mr. Jones. "Why all of the revisions?"