Are the quarterly GDP growth announcements misleading?

In this post I want to talk about an issue that has been bugging me slightly over the last year, which is the quarterly Gross Domestic Product (GDP) growth announcements made by Statistics New Zealand. These announcements are important as they are an indicator of prosperity within the country.

Every three months the latest GDP figures are released, generally following this schedule:

Late March:            GDP figures for the previous December quarter are released
Late June:               GDP figures for the previous March quarter (January to March) are released
Late September:     GDP figures for the previous June (March to June) quarter are released
Late December:      GDP figures for the previous September quarter are released

Other economists, the Treasury, and the Reserve bank make their own predictions on GDP figures, but the table above shows when the definitive GDP numbers are released. If you want concrete, hard facts on how the economy is actually doing, you have to use GDP figures that are at least 3 months old, or even older. Say for example it was early December and you wanted to describe the state of the economy. One of the most important pieces of information you need to that is five months old!

The other thing that annoys me about the GDP announcements is that they are generally only released and reported in aggregate (and not per-capita) terms. As an indicator of prosperity, aggregate measures of GDP are not quite as useful as per-capita measures. GDP per-capita figures are more likely to be affected by things that have an impact on our quality of life, such as productivity or income. Aggregate, or total GDP is affected by productivity and income, but can also be affected by changes in population, which does not necessarily improve the quality of life experienced by people within a country.

If you were planning on using GDP figures to get a better picture on how we are doing as a nation, It would be far better to to use per-capita values rather than the aggregate values. However, Statistics New Zealand make no mention of GDP per person at all in their releases!

The table and chart below shows how the total production of NZ has changed from quarter to quarter, and it is these figures that are broadcast by the media to discuss the health of the economy. At the moment, the the most up to date figure on GDP is from September 2011, when an increase of 0.8% was recorded over the June 2011 quarter. These increases are recorded in real terms (i.e. taking inflation into account). The table below shows how GDP has changed in the last three years. (At the moment, total GDP in New Zealand stands at around 200 Billion $NZ, and per-capita GDP is around 42 000 $NZ). Between the start of 2008 and September 2011, Total GDP (measured in constant prices) fell slightly by 0.3%

Quarter		Percentage increase in GDP from previous quarter
2008	Mar	-0.3
	Jun	-0.6
	Sep	-0.5
	Dec	-1.2
2009	Mar	-1.1
	Jun	0.1
	Sep	0.1
	Dec	0.8
2010	Mar	0.3
	Jun	0.3
	Sep	-0.1
	Dec	0.3
2011	Mar	0.7
	Jun	0.1
	Sep	0.8

The following chart and table show how per capita GDP has changed in the last four years. Over this period, per capita GDP fell by 3.9%. These figures are generally not reported by Statistics New Zealand

Quarter		Percentage increase in per capita GDP from previous quarter
2008	Mar	-0.5%
	Jun	-0.7%
	Sep	-0.8%
	Dec	-1.5%
2009	Mar	-1.4%
	Jun	-0.1%
	Sep	-0.3%
	Dec	0.5%
2010	Mar	0.0%
	Jun	0.1%
	Sep	-0.4%
	Dec	0.1%
2011	Mar	0.5%
	Jun	0.0%
	Sep	0.6%

If we compare the two growth rates in the same chart, we can see that total GDP quarterly change figures (in blue) are consistently higher than the per-capita change figures (in red). This because the total figures are augmented by New Zealand's increasing population. At the moment, Statistics New Zealand only release the figures in blue. If people are only glancing at these figures in the news, (which most are) they will get a slightly distorted, sugar-coated summary of the economy at any point in time. This is why I think the announcements are slightly misleading.

As I have stated above, per-capita GDP growth figures are a better indicator on how the quality of life within a country has improved, and its inclusion in growth announcements would improve people's understanding on the state of the economy. Now, I don't think the Statistics department have deliberately sought to pull the wool over any one's eyes. I just believe that Statistics New Zealand could include per-capita GDP figures in order to inform the public a bit better on how the economy is going.

So, those are my two issues with Statistics New Zealand. For the first issue, on the lengthy delay between quarters and their corresponding growth figures, I'm not really upset. I know there is a trade off between accuracy and speed. I would rather wait for accurate figures than have incorrect figures quickly.

On the second issue, I just want to say that if Statistics New Zealand go to so much trouble to collate these figures, It would make sense to present their data in a way that allows for an open and honest interpretation.

Finally, I want point out that GDP and GDP per-capita are not a perfect measures of the quality of life experienced by a society, and they should not be the primary focus of a government. They are just ways of measuring how we are doing as a nation. If we focus on more important issues, economic growth will take care of itself.