GDP Growth Revised Way Down: What Should You Make of It?

Second-quarter GDP growth was revised down to 1.6%, from the initially reported 2.4%.

This sounds god-awful, like we're on the brink of a double-dip recession. And maybe we are. But this revision isn't as bad as it might seem.

For one, the numbers were revised down due to imports coming in much stronger than originally anticipated, which is a sign of strong consumer demand. But since this is gross domestic product we're talking about, stuff the Bureau of Economic Analysis (the agency that calculates these numbers) originally counted as domestic production turned out to be shipped in from abroad. And so down we go.

Also, these slowdowns are not in the least bit rare. Here's how GDP growth fared in the six quarters after recessions ended in the past:

Real GDP growth after recession officially ended

Recession

Q1

Q2

Q3

Q4

Q5

Q6

1948-49

4.6%

(3.7%)

17.2%

12.7%

16.6%

7.2%

1953-54

0.5%

4.6%

8.3%

12%

6.8%

5.4%

1957-58

2.5%

9.7%

9.7%

8.3%

10.5%

(0.5%)

1960-61

7.7%

6.6%

8.4%

7.4%

4.5%

3.7%

1969-70

0.7%

3.6%

(4.2%)

11.5%

2.3%

3.2%

1973-75

3.1%

6.9%

5.3%

9.4%

3%

2%

1980

7.6%

8.6%

(3.2%)

5%

(4.9%)

(6.4%)

1981-82

0.3%

5.1%

9.3%

8.1%

8.5%

8%

1990-91

2.7%

1.7%

1.6%

4.5%

4.3%

4.2%

2001

3.5%

2.1%

2%

0.1%

1.6%

3.2%

Source: Intermarket Forecasting.

It's not uncommon at all to have growth slow way down, if not outright contract, during recovery periods after recessions (assuming our recession already ended, which many disagree with).

Unfortunately, GDP growth is, I think, a much overhyped number that means exactly nothing to everyday people, especially the unemployed. If recessions and recoveries are judged by employment, and they should be, then it's still bad out there, no matter what the GDP figures say.

What stays important, however, is focusing your investments on finding good, solid, cheap companies. And these seem in abundant supply today. From Intel (Nasdaq: INTC  ) with a 3.4% dividend, to Microsoft (Nasdaq: MSFT  ) trading at nine times forward earnings, to ExxonMobil (NYSE: XOM  ) now trading lower than it did during the depths of the financial crisis, there are plenty of opportunities out there. Don't let a GDP revision derail your confidence.

Fool contributor Morgan Housel owns shares of Microsoft and ExxonMobil. Intel and Microsoft are Motley Fool Inside Value recommendations. The Fool owns shares of and has written puts on Intel. Motley Fool Options has recommended buying calls on Intel. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of ExxonMobil. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 27, 2010, at 2:52 PM, kariku wrote:

    Will people stop already with that "double dip" non-sense ? Enough panic has been created (and maintained) on purpose, but enough is enough.

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