Friday, September 4, 2009

A Gross Discrepancy

There's a discrepancy between two pieces of economic data that shouldn't be occurring. John Crudele is on top of this one:

You've probably never heard of the gross domestic income, or GDI, which is compiled by the US Commerce Department right alongside the gross domestic product, or -- you guessed it -- the GDP.

The GDP fell only 1 percent in the second quarter of this year, which was something to hip-hip-hooray about because it had been down 6.4 percent in the first quarter of 2009; 5.4 percent in the last three months of 2008, and 2.7 percent during the quarter before that.

That's four straight down quarters for the GDP, although the recession -- so far -- is probably six quarters long and counting...

Some experts consider gross domestic income (GDI) a purer way of determining the amount of money people are accumulating without screwing around counting jobs and then contorting that figure a dozen different ways.

"In theory," the government says "the gross domestic product should equal gross domestic income."

GDP is the nation's output of goods and services. GDI measures the "income earned in the production of GDP." Both are measured from one quarter to the next.

OK, still with me?

Even though the nation's gross domestic product seldom equals gross domestic income -- as it technically should -- the two numbers should be moving in the same direction by relatively the same amount.

But that's not happening these days.

While the GDP has been posting negative growth for the past 12 months (or four quarters), the nation's gross income is on a year and a half losing streak.

Since the beginning of 2008, the nation's gross domestic income in consecutive quarters has been unchanged; down 0.1 percent; down 1.1 percent; down 7.3 percent; down 7.7 percent and -- most recently in the second quarter -- off by 2.1 percent.

That last number -- minus 2.1 percent -- is the most impor tant because it shows that the nation's income was down more than twice as much as the 1 per cent drop in the gross national product.

The slowing decline in GDP might have Wall Street excited but the continued decline in GDI shouldn't.

I went as far back as you can in the government's quarterly GDI figures -- 1947 -- and there has never before been a string of six quarters without a gain.

Five was the previous record in 1974.

The GDI had several double-digit losses in 1930s but the government only kept annual figures back then.

And the GDI in 2009's second quarter is 4.6 percent lower than it was this time last year, compared with a more modest 3.9 percent in the GDP.

And that 4.6 percent year-over-year decline is worse than the 4.1 percent year-over-year GDI drop in 2009's first quarter and the 2.1 percent slide in the fourth quarter of 2008.

In other words, the nation's gross domestic income has not yet shown any improvement. Hey, at least now you know why you are feeling so lousy. But look at the bright side, you are taking part in history, and that must be worth something.

How do you get different sides of the same coin weighing different amounts? Bottom line: Macro economic processed data that is aggregated from many different sources is just not that accurate. In my post, How to Monitor the Economy, I argue that this is the worst data to look at when attempting to understand what is going on in the economy. This discrepancy is further proof that these government aggregated pieces of macro data need to be taken with a good dose of salt.

1 comment:

  1. Wenzel,

    Shouldn't (Austrian, anyway) economists be ignoring GDP and focusing on a measure like Rothbard's Gross Private Product, which subtracts government incomes and expenditure from GDP as depredations on actual private income and production?

    I wonder what that figure would show...