The perception of economic growth can often be skewed by the metrics used to measure it. In a recent analysis by Antoni and St. Onge (2024), they argue that the true peak in GDP occurred in 2021Q4, contrary to official reports.
- Discrepancies in GDP Measurement:
- Real GDP is significantly lower than the figures reported in recent updates. This suggests that the deflator used by Antoni and St. Onge must be substantially higher than the official one.
- The deviation of their deflator from the reported data has accumulated to 20 percentage points since 2019Q1.
- Housing Costs and Their Impact:
- A major factor contributing to this deviation is the treatment of housing costs. Antoni and St. Onge highlight the flaws in the Consumer Price Index (CPI) methodology that fail to accurately account for rising housing costs.
- Constructing Alternative Indices:
– To address the inaccuracies in traditional inflation metrics, adjustments need to be made in three key areas: housing, regulatory burdens, and indirectly measured prices.
– Altering the approach to measuring housing costs has the most significant effect on adjusting the true cost of living, with the rise in home prices and interest rates contributing to a substantial increase in the GDP deflator.
– Factors like Trump-era deregulation temporarily reduced the cost of living, but this trend reversed under the Biden-Harris administration by the end of 2022.
Debunking Statistical Mysteries:
– Despite the detailed analysis by Antoni and St. Onge, their alternative deflator estimates lack clarity, making it impossible to replicate their calculations accurately.
– Attempts to replicate the housing effect reveal discrepancies between the alternative deflator estimates and the original data.
- Implications on GDP Growth:
- Applying the alternative consumption deflator to consumption and adjusting it in the GDP calculation results in a significantly different trend from the Antoni-St. Onge estimate.
- The lack of transparency in the authors’ methodology raises questions about the accuracy of their claims regarding a recession since 2022.
Ending Notes:
– Without detailed calculations provided by the authors, the validity of their claims remains uncertain. A common-sense check suggests that economic indicators like employment and industrial production do not align with the alleged recession scenario.
– The need for transparent and reproducible economic analyses is paramount in interpreting the true state of the economy and guiding policy decisions.
