by Wolf Richter
A perfect quarter to look at the absurdity of reporting “annual rates” in the headlines.
This morning, we were confronted with horrible news, which we’ve been expecting all along, but this news, though truly horrible, was also a result of something called “annual rate.” What we saw in the headlines was that GDP, adjusted for inflation, collapsed by “32.9%” in Q2.
That should have been reported as “32.9% Annualized.” It was an “annual rate,” meaning that the Q2 drop was essentially multiplied by 4 (with adjustments) to obtain a theoretical figure that shows what GDP for the whole year would look like if it kept plunging like this for four quarters in a row. But that is unlikely. The Bureau of Economic Analysis, which reported this GDP data this morning, also reports – deeper down in its data – “not annualized” figures. And not annualized, GDP fell 9.5% from Q1: