Is a decline in Q3 GDP a sure thing?

A lot of chatterers are absolutely convinced that real GDP will show a decline for Q3 when reported at the end of this week, but I would say that a decline is far from a sure thing. There are a lot of odd factors that go into real GDP, and they are not all moving in the same direction. First, the report this week is only the "advance" report and is based on estimates for data for September and even August that is simply not yet available and will be extrapolated. There will be a second report at the end of November which is somewhat more accurate, and a third report at the end of December that should be reasonably accurate. Second, the massive declines in the price of crude oil should dramatically reduce the subtraction for imports. Third, moderation of inflation should reduce the subtraction for inflation. Fourth, exports may possibly save the day, again. It is also possible that the final report might indeed be negative, but the advance report may come in somewhat positive. That said, Macroeconomic Advisers, the firm that supplies the monthly real GDP numbers used by the National Bureau of Economic Research (NBER) Business Cycle Dating Committee (BCDC), is forecasting a decline of -0.6% for real Q3 GDP.

I have no firm conviction as to where this advance estimate of GDP will come in, but I am fairly confident that it will be in a range of -1.5% to +1.5%, or an average of 0.0%. The current Macroeconomic Advisers forecast of -0.6% is as good an estimate as any.

Also, Macroeconomic Advisers is forecasting a Q4 real GDP decline of -2.2%.

Finally, a decline in GDP for Q3 will not indicate that a recession is "official" since there is no such thing as an "official recession." NBER is the closest we have to a semi-official arbiter of recession, but they may not mark the beginning of the recession until it is possibly over.

-- Jack Krupansky