Thread by @bencasselman

It’s Friday afternoon. Who wants a wonky thread on GDP calculations?

*crickets*

Too bad!

So, on Thursday we get the shutdown-delayed first estimate of Q4 GDP. Which means we’ll also get a first estimate of GDP growth for the full year 2018.

Before we get to the wonkiness, the big picture: Q4 will probably be weaker than Qs 2 & 3. Maybe a lot weaker. But 2018 as a whole was almost certainly the best since 2015, and very probably the best since before the recession.

(We can debate how much of the strong growth was a fiscal-stimulus-induced sugar high, and how much weaker 2019 will be as a result, etc. But 2018 was a good year for growth.)

OK, but *how* good was 2018? For political reasons, it is significant whether GDP growth hits 3% for the year. That’s the number Trump and has team have repeatedly touted, and that Obama never hit while in office.

(Side note: Obama did hit 3% on more than one occasion if you define "year" as "four consecutive quarters" and not "calendar year.")

Here’s the problem: There are two ways of calculating annual GDP growth. And they could very well give us different answers on Thursday.

One approach is to take average GDP for the full calendar year and compare it to average GDP for the previous calendar year. That’s what @BEA_news refers to as “annual” GDP growth. By that measure, 2017 came in at 2.2%.

The other approach is to look at GDP at the end of 2018 (the 4th quarter) and compare it to GDP at the end of 2017. @BEA_news talks about this as growth “during” 2018. It’s more commonly (and clearly) talked about as Q4/Q4 growth. That was 2.5% last year.

Note, though, that Q4/Q4 doesn't always produce a better number. In 2015, full-year growth was 2.9%. Q4/Q4 growth was just 2.0%. It's all about where the good/bad quarters fall.

Which way is right? Either? Both? CBO projections use annual growth. The Fed (and thus most Wall Street economists) use Q4/Q4. Politicians mostly use whichever suits their purposes. And usually it doesn’t make much difference.

But this time, it might. If Q4 growth comes in at or above 2.1%, Q4/Q4 will round to 3%. But to get to 3% for the full-year measure, we need Q4 to come in above 3.6%. @macroadvisers currently projects Q4 GDP at … 2.2%.

So there is a very real possibility that we will get dueling press releases Thursday:
White House: “Trump delivers 3% growth!”
Democrats: “Trump fails to deliver promised 3% growth!”
And they could *both be right.*

Mind you, this is all a parlor game. Q4 GDP will be revised next month. 3% is an arbitrary target. GDP is an imperfect measure of economic health. Etc. etc.

But if Thursday’s number falls into that window, you can bet you’ll be hearing a lot about it. So be prepared. </end>

(And thanks to @jimtankersley, whose slack question ended up prompting this exercise. Happy Friday, Jim.)

@jimtankersley Oh, and if you recently followed me because of that @AOC retweet ... yeah, this is more like what you can expect here going forward. Sorry.