August 16, 2012
It is standard in the United States to report GDP growth at annual rates. This is not true everywhere in the world, where growth rates are often expressed at quarterly rates.
This is where reporters and editors come in. Using the magic of modern mathematics, quarterly growth rates can be converted into annual rates. Usually multiplying by 4 will do the trick, but to be strictly kosher one should take the growth rate to the fourth power.
This means that when the NYT reported data from the Bank of England showing the UK economy shrinking by 0.7 percent in the second quarter it should have pointed out to readers that this implied a 2.8 percent annual rate of decline. By failing to convert the quarterly growth rate into an annual rate, the NYT led most of its readers to believe that the UK’s recession is only one fourth as severe as is actually the case.
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