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short essays and reports on the economic issues of the day
2002 ■ Number 14

Subject to Revision
Abbigail J. Chiodo and Michael T. Owyang
he overall state of the economy is often judged by
economic statistics such as inflation, unemployment,
and, of course, gross domestic product (GDP). Many
of these economic statistics undergo substantial revisions.
This is especially true for GDP, which is revised twice in
the first three months after its initial release. In the month
after each quarter, the Bureau of Economic Analysis releases
an advance estimate of GDP. In the two subsequent months,
the BEA updates this estimate with preliminary and then
final estimates. The initial estimates garner quite a bit of
attention in the financial world, but how well do they reflect
the true state of the economy? How well do they predict
final GDP?
The advance estimate of GDP is calculated with incomplete data from the quarter including business inventories,
housing, retail sales, and automobile sales. The preliminary
estimate is released a month later and incorporates more
data from the last month of the quarter. Even final GDP is
subject to annual revisions, which have resulted in changes
to prior GDP growth rates by more than 1.5 percentage
Economists Karen Dynan and Douglas Elmendorf
report that, from 1968 to 2001, the average revision of GDP
growth from the advance to the final estimate was 0.67
percentage points. During the same period, revisions
around peaks and troughs of the business cycle varied
greatly. Near business cycle peaks, revisions were—on
average—similar in magnitude to those during the rest
of the business cycle. Near troughs, however, estimates
were revised quite a bit more. When it comes to detecting
the end of a recession, therefore, current GDP estimates
may not be the best indicator.
The magnitude of the revisions to GDP makes it
unclear whether or not the most recent recession will
conform to the rule of thumb that a recession includes
at least two consecutive quarters of negative GDP growth.
Advance and preliminary GDP estimates for the third


quarter of 2001 were –0.4 percent and –1.1 percent, respectively. Final GDP growth was revised down to –1.3 percent.
Fourth quarter numbers were revised upward by 1.5 percentage points from the advance (0.2 percent) to the final
estimate (1.7 percent). These revisions make it increasingly
likely that the third quarter of 2001 was the only quarter
in the recession with negative growth.
Revisions aside, from 1978 to 1991, 88 percent of the
time the advance estimate correctly established the direction
of quarterly change in real GDP growth.2 Since total revisions do not tend to change the direction of the estimates,
the initial numbers may be helpful when determining the
direction in which GDP is heading, if not by how much.
However, advance and preliminary estimates of GDP around
business cycle turning points may be less accurate measures
of output. One may take heart, though, that revisions to
GDP appear to have gotten smaller (see accompanying
figure) during two extended expansions. ■

Dynan, Karen E. and Elmendorf, Douglas W. “Do Provisional Estimates of
Output Miss Economic Turning Points?” Working Paper 2001-51, Federal Reserve
Board of Governors, November 2001.


Young, Allan H. “Reliability and Accuracy of the Quarterly Estimates of GDP.”
Survey of Current Business, October 1993, pp. 29-43.

Revisions from Advance to Current Estimate of
GDP Growth (in Percentage Points)






Views expressed do not necessarily reflect official positions of the Federal Reserve System.