US GDP grows 3.4% annualized: the metric that misleads

US grows 3.4% annualized, not quarterly: the metric that misleads

The US economy grew 3.4% in the third quarter, according to the published figure. So far, that's the headline the financial press has been celebrating these days. But that 3.4% is an annualized quarterly rate: what the economy would grow in a year if it kept the pace of that quarter. Translated into real quarterly growth, it amounts to just over 0.8%. In Spain, the INE (Spain's statistics institute) publishes the quarterly figure without annualizing. A Spanish 0.6% quarterly rate equals about 2.4% annualized in the American style. The difference between the two economies exists, but it is considerably smaller than the direct comparison suggests.

Why the US 3.4% is not comparable with the Spanish figure

The US figure is published as an annualized rate, a convention that inflates the quarterly number. The 3.4% annualized implies real quarterly growth of approximately 0.8%. In the eurozone, Eurostat publishes quarterly growth without annualizing. A direct comparison between the two figures is misleading: a Spanish 0.6% quarterly rate equals 2.4% annualized. The real gap between the two economies narrows when the figures are put on the same metric.

The debate over the metric is not new. US GDP is calculated using a methodology that annualizes quarterly growth, while in Europe the raw quarterly figure is published. That difference in presentation explains why it sometimes seems the US is growing three times as fast as Europe when the real difference is considerably smaller. To compare properly, you have to look at the year-on-year rate of both economies or convert the figures to the same basis.

The debate over growth sustainability and the AI bubble

Beyond the metric, some argue that the current pace is unsustainable and that the correction will come when AI grows at a slower rate and rates rise due to runaway inflation. The pessimistic scenario starts from a possible market blowup, described by one participant as a bubble of considerable size. The optimistic scenario trusts that the S&P 500 will remain the foundation of savings and that the world's leading companies will keep their leadership.

The discussion shifts toward investment strategy. Diversification with MSCI World, which is actually almost all USA, and a bet on Spanish value managers such as Cobas, Azvalor or Horos are some of the options being considered. The experience of those who lived through the real estate crisis and held their positions through drops of 20% and 30% serves as a reminder: volatility is nothing new for long-term investors.

The statistical trick that also affects pensions and wages

The debate over the GDP metric extends to other indicators. Some point out that the supposed inflation has been subtracted from the 3.6% US growth figure, whereas if the same criterion were applied to pensions or public wages, the result would be very different. The statistics are handled differently in the supposed GDP, which fuels distrust of the official narrative. The comparison between economic growth and the evolution of incomes is not neutral: it depends on which inflation is used and what is included in the basket.

The growth figure is also read in geopolitical terms. Part of the analysis argues that US dynamism is explained by European spending on oil, gas and weapons. Europe's energy and military dependence finances part of American growth, which adds a layer of complexity to the debate over who really benefits from the expansion.

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The 3.4% annualized is far from the real 0.8% quarterly figure. The metric matters. And the next time someone compares US growth with Europe's, it's worth asking what units they are talking in.