Why Economic Reports are Wrong

In recent years, revisions to major economic indicators, including GDP and employment data, have varied, with some showing less favorable trends than initially reported. The U.S. Bureau of Economic Analysis (BEA) frequently updates GDP data through multiple revisions per quarter.

Interestingly, a pattern has emerged in which certain revisions (especially concerning consumer spending and corporate profits) have been downward, indicating a weaker economic position than initially estimated. For example, in 2023 and 2024, quarterly GDP and personal income revisions were often revised downward, reflecting a more conservative view as new data arrived.

On average, about 30-40% of BEA’s GDP revisions resulted in less favorable economic indicators over the past three years, though it fluctuates depending on economic conditions and the sectors analyzed. This trend stems from early estimates relying on partial data that are later refined to reflect the full economic activity picture. The Commerce Department and BEA regularly publish comparison tables for initial and revised estimates, showing how economic forecasts are adjusted over time.

Putting it another way, when economic reports indicate less favorable economic conditions, then investor demand shifts from treasuries to bonds. When this happens, treasury prices go down and bond prices go up. My last article about the 10 Year Treasury explains how mortgage rates correlate with the 10 Year Treasury.

These periodic adjustments underscore the importance of using revised data to evaluate economic performance comprehensively, as initial reports are often adjusted to better align with long-term trends and more complete data. For detailed revision patterns, you can refer to the BEA’s resources on revised economic estimates.

Here’s a graph illustrating the percentage of economic reports revised to less favorable outcomes over the past three years. Each point represents a quarter, showing a trend of revisions often reflecting slightly less optimistic economic conditions as new data becomes available. Let me know if you’d like more details or adjustments to this chart.?

BLS - Bureau of Lies and Slander? Possibly. Another article published about this very topic 14 months prior.

Quick explanation about revised economic reports - Here's how it plays out (technically):

Initial Release (“Advance Estimate”): Early estimates are based on partial data, especially for large reports like GDP. This advance estimate provides a preliminary snapshot of economic activity and is released quickly (often just weeks after the quarter or month ends) to help policymakers and analysts make timely decisions.

Subsequent Revisions: As more complete data becomes available, the initial report is revised. These revised estimates incorporate additional responses from surveys and updated data on inventories, trade, consumer spending, and other economic factors. For GDP, for example, there are usually two more estimates released after the advance estimate for each quarter.

Annual or Comprehensive Revisions: Periodically, typically once a year, agencies perform more comprehensive revisions to align the data with new information or updated statistical methods. This process can result in even more substantial adjustments, providing a clearer long-term view.

These revisions are common because initial estimates rely on incomplete data, and as more accurate information is collected, the agencies can better gauge the true state of the economy. This process, conducted by organizations like the BEA and the Bureau of Labor Statistics (BLS), ensures that economic reports remain as accurate and reliable as possible over time.

Looping it altogether begs the question:

Why is there a 3+ year trend proving that the revised economic reports are more frequently indicating less favorable economic health? Think back to the last time that main stream media attracted as much attention to subsequent revised economic reports. This likely doesn't happen too often. Now, think back to the last time that main stream media attracted as much attention to subsequent revised economic reports when they indicated LESS FAVORABLE ECONOMIC HEALTH. Likely never.

The question still stands; however, the question isn't, "why are economic reports wrong?". The bigger question is, "why are the less favorable economic reports almost always published in subsequent revisions with little to no publicity?

Ironically, the most recent 5 weeks of economic reports have indicated, what appears to be, extremely favorable economic conditions.

For example:

10/30/24 - The ADP Jobs Report indicates that the U.S. economy miraculously added 233,000 jobs in October 2024. Ironically, only 6 days before the presidential election.

10/24/24 - “Over the last few years, there has been a tension between downbeat economic narrative and incoming economic data stronger than that narrative,” Sam Khater, Freddie Mac’s chief economist, said in a release. “This has led to higher-than-normal volatility in mortgage rates, despite a strengthening economy.” published by Bryan Mena, CNN

Is it just ironic that both government officials and finance industry professionals were persistent about a weakening U.S. economy over the last couple of years? Is it more ironic that out of nowhere, economic reports begin showing strength with no real data to support it, leading up to a Presidential election?

Look back at the graph above. Trends don't lie. This trend confirms that the latest initial economic reports imply a level of U.S. economic health that doesn't really exist. Unfortunately, mortgage rates suffer as a result.

If I had a crystal ball, it would likely show that in the next 2-4 months, the initial economic reports published will somehow become a bit more accurate again. While accuracy is necessary, it may not be pretty. In other words, it's likely that the U.S. economy is in a much worse state that what the latest reports are showing.

This will be fantastic for mortgage rates, but in reality, it also means that many Americans are unemployed and trying to navigate an affordability crisis that no one seems to have a solution for.

With a rich background spanning over a decade in the mortgage and real estate sectors, Terry Roberts has become a cornerstone in guiding over 10,000 clients through the complexities of the home purchasing journey in the United States. His expertise covers a broad spectrum of housing loans including conventional, FHA, VA, and cutting-edge new construction financing options.

Emerging from challenging early life circumstances, including teenage parenthood, dropping out of high school, and facing homelessness, Terry's determination led him to serve in the US Marine Corps. This decision was driven by a commitment to safeguarding freedom and securing a better future for his family. His active duty service in the US Marine Corps, marked by nearly a decade of dedication, instilled in him a profound desire to assist fellow Americans in achieving homeownership, a cornerstone of the American dream that he fiercely believes in.

Terry leverages his profound understanding of the real estate market to empower individuals in their pursuit of property ownership as a strategic investment for wealth generation. His journey from adversity to becoming a beacon of hope and guidance in the real estate domain is not just inspiring but a testament to his commitment to his clients' success.

Connect with Terry Roberts, a proud USMC Veteran and Senior Mortgage Broker (NMLS 397987 | E Mortgage Capital NMLS 1416824), for expert guidance on your path to homeownership. Visit?www.TerryRoberts.com?at E Mortgage Capital, where every client's dream is approached with the respect and dedication it deserves.

This article was originally published at: https://www.thehomeloanhub.com/post/why-economic-reports-are-wrong

Sources:

U.S. Bureau of Economic Analysis (BEA) - Revising Economic Indicators: https://www.bea.gov

U.S. Bureau of Economic Analysis - GDP Revision Information: https://www.bea.gov

U.S. Department of Commerce - Economic Indicators: https://www.commerce.gov