GDP data revisions sometimes can have the effect of re-framing our thoughts on the nature of the business cycle we just went through. For instance, the revisions released this morning showed something interesting about 2008.
The interesting thing to me was that Q3 2008 was simply wretched and much more so than we had previously thought. An annualized 4.0% contraction is fairly poor, though not entirely surprising given that Q3 was the quarter most heavily impacted by the ridiculous levels of oil prices at the time. That effect is borne out in the finer points of the data where consumer spending declines accounted for fully 2.5 points of that 4.0. This is what you would expect given the huge hit to purchasing power consumers took.
I think this confirms what James Hamilton over at Econbrowser has argued for some time which is that the oil shock in 2008 had a much larger contribution to the severity of that recession than we give it credit for. Bear in mind, Lehman collapsed in mid-September and its full effects were not really in place until the end of the month. Lehman's effect was mainly a Q4 event, and of course Q4 and Q1 2009 were simply abysmal quarters. However, it is clear that even without the collapse of Lehman that we were in the midst of a severe recession due to the combination of the grind of the housing collapse and the oil shock in 2008.
To some extent, other data revisions reflect this as non-farm payrolls were in very steep decline in the late summer of 2008 even before the effects of Lehman. Now the picture is a little more complete.
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