The first revision to second-quarter GDP, published on Friday 22 August, downgraded growth from the first quarter from 0.2% to zero. According to press reports, this was the weakest performance since the second quarter of 1992 – the tail-end of the last recession.

Such statements are wrong because they compare the first revision to the latest quarter with final GDP estimates for prior quarters. In fact, there were three quarters after 1992 for which the first revision indicated no growth in GDP – the first quarter of 1999, the fourth quarter of 2001 and the first quarter of 2002. The latest data shows GDP increases of 0.4%, 0.4% and 0.5% respectively for the three quarters. Clearly, there is a significant chance that the current second-quarter number will be revised higher.

The OECD yesterday published forecasts showing GDP declining at annualised rates of 0.3% and 0.4% in the third and fourth quarters, satisfying one definition of a recession. However, the OECD quotes a standard error of 1.2% around its projections, implying the forecast declines are not statistically significant. Moreover, according to a footnote, the UK model has been revised to include residential property prices, which are thought to be important currently, but the change causes a deterioration in historical tracking performance. In other words, the OECD has intervened judgementally in the statistical forecasting process in a way likely to have resulted in more negative projections.

The OECD’s forecasts are hardly authoritative. Back in March, the organisation projected no change in US GDP in the second quarter. The latest estimate shows growth of 3.3% annualised.

The modest improvement in services sector activity reported in today’s purchasing managers’ survey for August is a welcome antidote to current excessive economic gloom. As suggested in a previous post, business and consumer surveys earlier in the summer were artificially depressed by the temporary surge in oil prices. Taking into account manufacturing and construction results released earlier in the week, the PMI surveys are consistent with a stagnant rather than contracting economy.