The Wall Street Journal’s Statistics Goof (Caught by, ahem . . . Yours Truly)

Will It Issue a Correction??

[Note to Readers: The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway, or any other entity referenced.]

       “If 10% of the economy shuts down for one quarter, that would be considered a 40% decline at an annual rate.”

–“Coronavirus Slump Is Worst Since Great Depression. Will It Be as Painful?”; The Wall Street Journal (5/10/2020).

If you can’t follow the math in the excerpt above — and I couldn’t — it’s because there appears to be a mistake: specifically, the “10%” and “40%” are reversed.

The mistake is easiest to grasp using concrete numbers.

So, assuming that annual U.S. GDP is $20 Trillion (it’s actually closer to $22 Trillion — or was), quarterly GDP looks like this:

Q1: $5 trillion
Q2: $5 trillion
Q3: $5 trillion
Q4: $5 trillion.

Annual GDP = $20T

Now, assume that Q2 GDP — the current quarter that began April 1 — takes a 40% hit due to the Covid-19 pandemic, as many economists now expect:

Q1: $5 trillion
Q2: $3 trillion (40% decline)
Q3: $5 trillion
Q4: $5 trillion

Annual GDP = $18T; decline = $2T or 10% annual decline

That would certainly appear to be what the WSJ author seemed to intend.

By contrast, here are the statistics using the author’s actual, reversed percentages:

Q1: $5 trillion
Q2: $4.5 trillion (10% decline)
Q3: $5 trillion
Q4: $5 trillion

Annual GDP = $19.5T; annual decline = 2.5% (not, “40% annual rate of decline”).

See what I mean??



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