by Bill Holter, Miles Franklin:
We got the revised GDP numbers for the 1st quarter this past week which showed the economy contracted at a 1% pace. This was revised down from .01% originally reported.
For those who don’t know how “GDP” is calculated I would like to explain it in the most basic of terms. The final GDP “growth” number is calculated by taking total “production” for the quarter and comparing it to either the quarter before or the same quarter the year before and adjusting it for “inflation.” For example, if the total economy was an arbitrary number of “100″ last quarter and produced “101″ this quarter then the nominal growth was 4% (1%X 4 quarters= 4%). But before coming up with a real and inflation adjusted number, the inflation rate must be taken into account. If inflation is running at 3% then the “real” growth rate is cut to just 1%. Yes I know this is oversimplified and does not take into account things like foreign trade etc. but follow along.
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