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The 1.9% SAAR growth rate in 2008Q2 [BEA] is widely viewed as a positive [0]; and the fact that GDP growth remained, in this advance release, above zero is a positive. However, when taken with the annual revision, one sees some interesting aspects. Not only was growth in 2007Q4 negative, albeit slightly. The revisions put 2008Q2 real GDP below what the final estimate for 2008Q1 GDP was: $11692 versus $11701. Future revisions will definitely occur to the 2008Q2 figure, and indeed the figures back to 2006Q1 will be again revised come next July.

Figure 1: GDP in billion Ch.2000$ SAAR, from July 31 2008 release (blue), from June 26 release (red), and potential GDP, from CBO February estimates. Source: BEA and CBO Update of CBO's Economic Forecast[xls]. (February 2008), data

Even with the growth of 1.9% in 2008Q2, the output gap has widened to -2.3%, in log terms. Of course, given the malleable nature of these estimates (on both the GDP and the potential GDP sides) [1], one should not put too much store in these exact figures. What is true is that the longer sub-par growth continues, the more negative the gap will become.

Figure 2: Output gap (measured as log deviation from CBO potential), from July 31 2008 release (blue), from June 26 release (red). Source: BEA, CBO Update of CBO's Economic Forecast (February 2008), data [xls] and author's calculations.

Finally, these revisions illustrate the point I have made on the past: around local maxima, GDP estimates will typically be revised downward [3] [4] (as they are going from the June 2008 to July 2008 vintage).

Figure 3: Annualized rowth rates calculated as q/q log differences, from July 31 2008 release (blue), from June 26 release (red), and +/- 2 standard deviations of revisions from advance to preliminary (teal lines) and +/- 2 standard deviations going from advance to latest (green pluses). Source: BEA.

Note that Q2 GDP growth could plausibly be revised anywhere within the teal cone (that is, within the +/- 2 standard error band), going from the advance to the preliminary release. One easily observes that this cone does not encompass zero growth. However, as the release notes, revisions to GDP going from advance to latest exhibit standard deviations of 1 percentage point. The +/- 2 standard deviation band (marked by the +'s) does encompass zero...which is why I don't title posts with unequivocal conclusions like this.