How To Calculate US Real GDP Growth Rate? - vrk100 - 02May2022

How To Calculate US Real GDP Growth Rate? 

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(Updates dated 31Jan2023, 28Oct2022 and 29Jul2022 are available at the end of the article with latest US real GDP data)

 

On 30Jul2020, media headlines screamed, "US second quarter GDP plunges by 32.9 per cent!" A fall of 32.9 per cent is big; this big drop has to be seen in the context of  rapid spread of COVID-19 Pandemic during Apr-Jun2020 quarter.

What is the meaning of this 32.9 per cent decline? Before we delve into this, let us see how GDP growth rates are calculated in India.

India GDP Growth Rate Calculation

India gross domestic product (GDP) growth rates are calculated in a simple way. They are stated as year-on-year growth rates, using the growth of a particular quarter GDP in a financial year over the same quarter GDP in previous financial year.

For example, India's third quarter real GDP (Oct-Dec2021) of financial year 2021-22 is Rs 38.22 lakh crore; and its third quarter real GDP (Oct-Dec2020) in FY 2020-21 is Rs 36.26 lakh crore.

The calculation: 

(38.22 - 36.26) ÷ 36.26 = 0.054 or 5.4 per cent.

This is reported as: India's third quarter GDP growth rate year-on-year is 5.4 per cent.

 

US GDP Growth Rate Calculation

In the US, quarterly GDP growth rates are calculated differently. Sequential quarterly growth rates are annualised and the annualised numbers are reported. 

In fact, many data points in the US are reported as annual rates. This tradition goes back to several years.

Let us calculate the rate using the 32.9 per cent drop in growth rate in the second quarter of 2020 cited above. 

The first quarter (Jan-Mar2020) US GDP was USD 19,010.8 billion and the second quarter (Apr-Jun2020) was USD 17,205.8 billion (these number were slightly revised later).

The calculation:

The sequential growth rate is minus 9.495 per cent.

(17205.8 - 19010.8)  ÷ 19010.8 = - 0.09495 or minus 9.495 per cent.

This negative sequential growth rate is then annualised as follows: 

[1 + (- 0.09495)]^4 - 1 = [0.90505]^4 - 1 = 0.67096 - 1 = - 0.32904 or negative 32.9 per cent.

Note: ^4 is to the power of four 

 

This is reported as: Real gross domestic product (GDP) in the US decreased at an annual rate of 32.9 percent in the second quarter of 2020.

 

Let us give another example using positive growth rate:

The third quarter (Jul-Sep2021) real US GDP was USD 19,478.89 billion and the fourth quarter (Oct-Dec2021) print was USD 19,806.29 billion. 

The calculation:

The sequential growth rate is positive 1.681 per cent.

(19806.29 - 19478.89)  ÷ 19478.89 = 0.01681 or 1.681 per cent.

This sequential growth rate is then annualised as follows: 

[1 + (0.01681)]^4 - 1 = [1.01681]^4 - 1 = 1.06895 - 1 = 0.06895 or 6.9 per cent.

This is reported as: Real gross domestic product (GDP) in the US increased at an annual rate of 6.9 percent in the fourth quarter of 2021.

You can calculate the above numbers using MS Excel tool also. The above manual computation looks like 'meaningless' when you've enormous computational power in your hands these days.

But in order to understand the mechanics behind the reported numbers, you sometimes need to do / learn things the old way.

If you compare India's quarterly GDP growth rate with the US quarterly GDP growth rate, you would get a wrong picture due to differences in calculation of the growth numbers.

As such, before comparing the growth rates of two countries, say, India and the US, it would be of great help to know how these growth numbers are calculated and reported.

Table showing simple year-or-year quarterly growth rates and annualised growth rates for the US since 2018 till now > 

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P.S.: The following data are included after the above article was published on 02May2022:

 

 

Update 31Jan2023

US GDP data for 4th quarter of 2022 > In Oct-Dec2022 quarter, the US real GDP  increased at an annual rate of 2.9 percent, versus 3.2 percent in Jul-Sep2022 quarter.

The US real GDP  increased 2.1 percent in 2022 (from the 2021 annual level to the 2022 annual level), compared with an increase of 5.9 percent in 2021.

 

Update 28Oct2022

US GDP data for third quarter of 2022 > After suffering two negative quarters of growth consecutively, the real GDP growth expanded by 2.6 percent (annualised rate) in Jul-Oct2022 quarter >

 

Update 29Jul2022

US GDP data for second quarter of 2022 >The US real GDP growth rates are negative for two consequent quarters of 2022, with the real GDP contracting by 1.6 percent and 0.9 percent in first and second quarters respectively >

 

Note: The US GDP numbers are released by Bureau of Economic Analysis. BEA and the Fred data reports the numbers as 'seasonally adjusted annual rates.'

References:

Why does BEA publish estimates at annual rates?

Apr-Jun2020 US GDP full release by BEA 

Fred data - US real GDP quarterly in US dollars

Fred data - US real GDP growth rate yearly

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Disclosure:  I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets. 

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India Second Quarter GDP FY 2021-22 - vrk100 - 30Nov2021

India Second Quarter GDP FY 2021-22

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Government of India today announced GDP (gross domestic product or annual income) estimates for the second quarter of financial year 2021-22. The real GDP (at constant prices) for the second quarter is Rs 35.73 lakh crore, showing a growth of 8.4 per cent as compared to the second quarter of FY 2020-21.

 

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It is worth noting that India's real GDP for second quarter of FY 2021-22 is Rs 35,73,451 crore as compared to second quarter real GDP of FY 2019-20 of Rs 35,61,530 crore--which amounts to practically zero growth in the past two years.

It may be noted that the real GDP in Q1 and Q2 of FY 2020-21 contracted by 24.4 per cent and 7.4 per cent respectively due to the draconian lockdown, during March-June 2020, imposed by the Prime Minister Modi government after the outbreak of COVID-19 pandemic.

Table 1 - Real GDP (click on the image for a better view): 

As can be gleaned from the above table, India's national income has not grown at all in the past two years. Even before the Pandemic, India's GDP growth rate had been decelerating due to the failure of the economic polices of the current central government.  

It's disconcerting to note that India's per capita income, as per World Bank estimates, is USD 1,950, which is below that of Bangladesh.

Table 2 - GDP at current prices (click on the image for a better view): 

Nominal GDP for the second quarter of FY 2021-22 is Rs 55.54 lakh crore, showing a growth of 17.5 per cent versus second quarter GDP of FY 2020-21. Nominal GDP recorded a contraction of 4.4 per cent in second quarter of FY 2020-21 amidst the Pandemic. 

Nominal GDP growth of 17.5 per cent for the latest quarter is driven by inflationary pressures in the Indian economy that have been building up since November 2019.

For October 2021, India's consumer price inflation (CPI) is 4.48 per cent and wholesale price inflation (WPI) is 12.54 per cent. It's an irony during and after the Pandemic that corporates and other businesses have achieved pricing power (as reflected in the steep WPI inflation rate) even though there is demand destruction domestically caused mainly by the COVID-19 deaths, loss of livelihoods in the informal sector and the supply chain bottlenecks globally. 

It is hoped the momentum in the Indian economy will continue to hold at least in the next two quarters, despite the deep concerns about the new Omicron variant, which is declared as a variant of concern (VOC) by the World Health Organisation (WHO).

India CPI and WPI inflation figures >

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Note: India's financial year starts from April to March of every year. Traditionally, India quarterly GDP figures are compared year-on-year (in contrast to the US where they are compared quarter-on-quarter).

References:  

MOSPI press note dated 30Nov2021

Trading Economics: India CPI inflation rate

Trading Economics: India WPI inflation rate

Abbreviations used:

GDP - gross domestic product

USD - US dollar

Disclosure:  I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets. 

CFA Charter credentials  - CFA Member Profile

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He blogs at:

https://ramakrishnavadlamudi.blogspot.com/

https://www.scribd.com/vrk100

Twitter @vrk100

India First Quarter GDP Growth of FY 2021-22 - vrk100 - 02Sep2021

India First Quarter GDP Growth of FY 2021-22 

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A few days ago, Indian government announced GDP (gross domestic product or annual income) estimates for the first quarter of financial year 2021-22. The real GDP (at constant prices) for the first quarter is Rs 32.38 lakh crore, showing a growth of 20.1 per cent as compared to the first quarter of FY 2020-21.

It may be noted that the real GDP in Q1 of FY 2020-21 contracted by 24.4 per cent due to severe lockdown imposed by the Modi government after the COVID-19 outbreak. 

Table 1 - Real GDP (click on the image for a better view):

As shown in the table 1 above, the first quarter GDP for FY 2021-22 is still below the real GDP number of Rs 35.67 lakh crore in Q1 of FY 2019-20.

The COVID-19 pandemic has severely hit services sector during the Apr-Jun 2021 quarter also, though agriculture and manufacturing sectors have done reasonably.

Table 2 - GDP at current prices (click on the image for a better view): 

 

As shown in table 2 above, the first quarter GDP for FY 2021-22 at current prices is Rs 51.23 lakh crore, showing a growth of 31.7 per cent versus the first quarter of FY 2020-21.

It is expected the economic recovery will continue for the next two quarters with expectations of a 9 to 10 per cent real GDP growth for the fully year of 2021-22.

Note: India's financial year starts from April to March of every year.

Reference: MOSPI press note dated 31Aug2021

- - -

Disclosure:  I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets. 

CFA Charter credentials  - CFA Member Profile

CFA Badge

 

He blogs at:

https://ramakrishnavadlamudi.blogspot.com/

https://www.scribd.com/vrk100

Twitter @vrk100

India's First Quarter GDP Surges-VRK100-29Aug2014

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India’s real gross domestic product (GDP) in April-June (first quarter of 2014-15) surged by 5.7 percent over the first quarter GDP of 2013-14. This is quite positive for the economy and a great relief for the Central Government. The GDP measures a country’s national income and is the total value of all goods produced and services provided within a country. After clocking sub-5 percent growth rates for almost all quarters in the last two years, the GDP growth crossed 5 percent in the latest quarter.

The GDP at factor cost is Rs 14.38 lakh crore in the first quarter of 2014-15. And the GDP at current market prices is Rs 28.43 lakh crore. The surge in the first quarter GDP is led by finance, insurance, real estate and business services (10.4% growth over first quarter of 2013-14); electricity, gas and water supply (10.2% growth); community, social and personal services (9.1% growth); and construction (4.8% growth).

A substantial part of the increase in GDP growth can be attributed to the previous UPA government. The former finance minister P Chidambaram took several steps to revive the economy, though his methods are questionable. The current account deficit was brought under control through some blunt measures, such as, curbing gold imports and raising interest rates. The UPA government controlled the fiscal deficit also, though with the help of some creative accounting, extracting special dividends from cash-rich public sector enterprises and postponing expenditures to the next year.

The surge in GDP growth is a positive for Indian stocks. Global stocks too have been on the upswing for several years though the outlook for the economies of the US, eurozone and China is not very rosy. Prices of crude oil and some other commodities are in decline in recent months—a positive for India.

On expectations of higher growth from the new government, foreign investors have invested heavily in Indian stock and government bond markets this year.

Now the speculation will shift to a possible upgrade in India’s sovereign rating. There have been some rumours that the rating agencies, such as, Standard and Poor’s and Moody’s may consider raising India’s rating. If it happens it will be a boost not only for India’s economy but also for Indian stocks.

However, rainfall from India’s South-West monsoon is deficient in several parts of the country, which may negatively impact agricultural production and livelihoods of millions. The Reserve Bank of India is still battling with inflationary pressures, especially, food inflation.

We also need to watch how the new NDA government led by prime minister Narendra Modi will revive the moribund manufacturing sector and create millions of jobs for India’s restless youth. As far as infrastructure sector is concerned, several measures have been taken in the past three months to revive road and other projects. Indians are hoping for a better future.

Related Articles:

What is GDP? 03Jan2014

Strengths and Weakness of Indian Economy: 01Sep2013

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Abbreviations: NDA – National Democratic Alliance, UPA – United Progress Alliance

Data source: Central Statistics Office, GoI.

Disclaimer: The author is an investment analyst, equity investor and freelance writer. This write-up is for information purposes only and should not be taken as investment advice. Investors are advised to consult their financial advisor before taking any investment decisions. He blogs at:

http://ramakrishnavadlamudi.blogspot.in/

http://www.scribd.com/vrk100

Connect with him on twitter @vrk100

India's Q2 GDP Growth at 4.8%-VRK100-29Nov2013

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              Note: Base year 2004-05, Real GDP at factor cost at constant prices.

India’s second quarter GDP growth has grown by 4.8 percent as against 5.2 percent in the corresponding quarter of previous year. The second quarter growth during the July-September 2013 period has been led by economic activities, such as ‘finance, insurance, real estate & business services,’ ‘agriculture,’ ‘construction’ and ‘electricity, gas & water supply.’ The second quarter growth indicates a slight pick up in GDP growth rate as compared to 4.4 percent growth rate clocked in the first quarter of the financial year 2013-14.

As the above graph indicates the quarterly growth rates have slumped to less than 5 percent in the last four quarters. Such sub-5 percent growth rates are for the first time in more than a decade. Indian economy experienced very high growth rates of 7-9 percent between 2003-04 and 2010-11. Since the second quarter of 2011-12, the growth rates have been declining at a steady rate, caused by various factors, notably, dogged inflation pushing up interest rates, debacle in manufacturing sector following policy bottlenecks, fall in foreign investment, concerns about fiscal and current account deficits, and bungled investment climate. 

Now let us see what are the main contributors to the slight pick up in the GDP numbers and what the future holds for the Indian economy’s growth prospects.

Main Drivers for the 4.8 percent Growth:

Q2 growth rates (y-o-y) *	Jul-Sep          2012-13	Jul-Sep          2013-14
	% growth ^	% growth ^
A. Services	7.1	5.8
1. Construction	3.1	4.3
2. Trade, hotels, transport & communication	6.8	4.0
3. Finance, insurance, real estate & business services	8.3	10.0
4. Community, social & personal services	8.4	4.2
B. Industry	0.5	1.6
1. Mining & quarrying	1.7	-0.4
2. Manufacturing	0.1	1.0
3. Electricity, gas & water supply	3.2	7.7
C. Agriculture & Allied Activities	1.7	4.6
D.Total GDP (A + B + C)	5.2	4.8

   * Base year 2004-05, ^ Over corresponding quarter of previous year

1. Finance, insurance, real estate & business services: This activity has clocked a growth rate of 10 percent topping the list.

2. Agriculture: Led by robust monsoon this year, agriculture grew by 4.6 percent as against 1.7 percent last year. In this Kharif season, oilseeds grew by 14.9 percent, while coarse cereals and pulses grew by 4.9 and 1.9 percent respectively.

3. Construction: It has grown by 4.3 percent compared to 3.1 percent last year. Cement output registered a growth rate of 5.9 percent, while steel consumption grew by 1.3 percent.

4. Electricity, gas and water supply: Its growth has gone up by 7.7 percent as against 3.2 percent last year.

5. The worst performing contributors are ‘mining & quarrying’ and ‘manufacturing.’

6.  In the Services sectors: In Railways, cargo traffic grew by 3.7 percent, but passenger traffic contracted by 2.5 percent. Sale of commercial vehicles slumped by a massive 22.1 percent, while passengers handled by civil aviation grew by 12.6 percent in the second quarter.

Private and Government Consumption (at market prices):

As indicated by the estimates of expenditures on GDP, private consumption growth during the second quarter is somewhat muted. Private final consumption expenditure (PFCE) rates at constant (2004-05) prices are 59.8 percent in Q2 of 2013-14 as against 61.8 percent in Q2 of 2012-13.

Government consumption growth during the second quarter has declined. Government final consumption expenditure (GFCE) rates at constant (2004-05) prices are 10.3 percent in Q2 of 2013-14 as against 11.0 percent in Q2 of 2012-13.

What does the future hold for Indian Economy?

GDP growth rate in the second quarter at 4.8 percent is a tad better than 4.4 clocked in the first quarter of this financial year, but lower than 5.2 percent achieved in the second quarter of last financial year.  While the government’s estimated figures for the full year are indicating more than 5 percent GDP growth, others indicate sub-5 percent figures for the entire fiscal year 2013-14.

The first half-yearly growth rate is 4.6 percent. To achieve a minimum of 5 percent for the full year, the second-half growth should be at least 5.4 percent.

Half-Yearly GDP Growth Rates %
	First half	Second half
2009-10	7.6	9.5
2010-11	9.1	9.6
2011-12	7.0	5.5
2012-13	5.3	4.7
2013-14	4.6

As the above table shows, in the last two years, the second-half growth rates are much less than the first-half growth rates—these two years have shown declining growth trends for the economy. But in 2009-10 and 2010-11, the second-half rates are much better than first-half figures—interestingly in these two years growth rates have been on the upswing.

While inflation and fiscal deficit have been two big problems for the Indian economy in the past five to six years, current account deficit is somewhat under control due to gold import curbs, RBI’s swap windows, FII inflows and rupee strength in the last two to three months.

Consumer price inflation (CPI) continues to be above 10 percent, while whole-sale price inflation (WPI) is above 7 percent—negatively impacting the poor and the middle class sections of India. The government (s) have done precious little in the last five to six years to ease the supply bottlenecks. The RBI is left to battle the inflation monster on its own without any support on the fiscal side.

But this year, the central government is giving the impression that will stick to its 4.8 percent fiscal deficit target for the current year. Media reports suggest the government is cutting plan expenditure severely this year, due to slowdown in tax collections and sluggish disinvestment receipts. What is alarming though is the fact the government has reached 84 percent of its full year budgeted target of fiscal deficit in the first seven months  (April-October) itself.

This is an election year for the central government. So it remains to be seen how the government will curtail its expenditure, that too, when 84 percent of the budget target is already reached.

The government claims to have cleared projects worth lakhs of crores of rupees.  But investment activity is yet to pick up, with the private sector not showing much enthusiasm for new projects. Investors have to keep their fingers crossed with regard to the prospects of Indian economy until some clarity comes on investment cycle upturn.

Related Articles:

Reasons for the Sharp Slowdown in GDP Growth:

India’s GDP Growth Slows: 10Sep2013

Strengths and Weakness of Indian Economy: 01Sep2013

Data source: Central Statistics Office, Government of India

GDP – Growth Domestic Product or national income, RBI – Reserve Bank of India.

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Disclaimer: The author is an investment analyst, equity investor and freelance writer. This write-up is for information purposes only and should not be taken as investment advice. Investors are advised to consult their financial advisor before taking any investment decisions. He blogs at:

http://ramakrishnavadlamudi.blogspot.in/

http://www.scribd.com/vrk100

Connect with him on twitter @vrk100