GDP did NOT decline on a year-on-year basis!

This morning I read the following erroneous claim in an article from Business Spectator (in Australia) by Alan Kohler entitled "The end of deflationary trade":

... US GDP fell in the September quarter - by 0.3 per cent ... it is the first year-on-year decline in GDP since 1991, ...

Well, that is a false claim since the was not a "year-on-year decline in GDP" in Q3. I suspect that they just do not know how to read the government GDP report. The report does say "Real gross domestic product decreased at an annual rate of 0.3 percent in the third quarter of 2008", but that simply means if you took the decline in Q3 (one quarter) and expressed it as an annual rate it (by simply multiplying by 4) it would be -0.3%. In fact, the report immediately goes on to say "(that is, from the second quarter to the third quarter)", making it rather clear that the decline was quarter-on-quarter annualized and not year-on-year.

Let's do the math...

Real GDP in Q3 2007 was $11.6257 trillion. In Q3 2008 it was $11.7200 trillion. That is a year-on-year *gain* of  +0.81%, not a loss!

The actual (estimated) decline in real GDP in Q3 from Q2 was a mere $7.4 billion or a quarter-on-quarter decline of -0.0631%. Multiply that by 4 to make it an "annual rate" and you get -0.252%. Round to a single decimal digit and you get the "annual" rate of -0.3%. But that is not a "year-on-year" decline.

-- Jack Krupansky