The GDP’s inflation metric is clearly bogus

Lately, it seems the U.S. economy is flat on its back, with companies going bankrupt left and right. Yet, government statistics say quite the opposite. In the second quarter, the U.S. economy supposedly grew 1.9% annualized q-o-q. Sounds pretty good, huh?

The sceptic in you might be asking, “how did we manage a 1.9% GDP growth rate in Q2 when the economy looks so awful?”

The answer: bogus data. I’m not one for conspiracy theories, but this data is so obviously false that it galls me to see the U.S. government releasing it.

What you see above is the GDP deflator series. This is how the U.S. government gets from nominal GDP to the GDP number we all hear on TV. What’s interesting about these numbers is the GDP deflator uses its own inflation gauge , which is entirely different than the CPI. (Update: note, the GDP deflator is altered to take imports out of the GDP statistic. This has the net affect of increasing the GDP deflator when import prices are low and decreasing it when they are high).

Look at the highlighted numbers for Q3 2007 and the last quarter. How is it that inflation was 1.5% in Q3 2007 and 1.1% in Q2 2008? Are they smoking something? Uh, fellas, inflation has been rising, not falling to 1.1%. Hmmm.

Nominal GDP only grew 3.0% in Q2, so Q2’s real GDP number of 1.9% is so obviously false that I expect it to be revised down significantly next year.