GDP vs GDI
Gross Domestic Income (GDI) and Gross Domestic Product (GDP) are two measures of the same thing.
They are supposed to match, and with upcoming revisions, they will.
But which way?
Comments From a Friend
“The American Bankruptcy Association has been predicting a recession for a couple of years. But it just doesn’t happen. And I don’t think that it’s irresponsible, lending, the kind that leads into a chasm.”
No Bank Chasm
Regarding irresponsible lending, I agree with my friend. This is not 2008. We have a housing transaction crash, not a price crash.
That’s likely to linger because people do not want to trade a 3 percent mortgage for a 7 percent mortgage.
But think of all the appliances, furniture, cabinets, landscaping, etc., that happen when people prepare to sell a home and when they buy a new one.
High mortgage rates and a dearth of transactions is a driver of stagnation, not economic growth.
Commercial real estate is another matter given the crash in office space price, but that impacts regional banks more than the too big to fail larger banks.
Banks, especially regional banks, made stupid bets regarding interest rates with deposits and a few went under as a result. There may be serious implications down the road, but for now, the Fed avoided a crisis.
Yet, in some ways, this setup is worse. Stagnation will linger as recession or near-recession for a long time.
I made that assessment last August, (See Expect a Long Period of Weak Growth, Whether or Not It’s Labeled Recession).
A few week later, Powell said nearly the same thing, albeit toned down a bit.
Gross Domestic Income is Telling
- 2022 Q4 GDP: +2.6 Percent
- 2023 Q1 GDP: + 1.3 Percent
- 2022 Q4 GDI: -3.3 Percent
- 2023 Q1 GDI: -2.3 Percent
Revisions to the Downside
Heading into recessions, revisions are generally to the downside. Heading out of recessions revisions are to the upside.
GDI is very negative for 2 quarters. Hardly anyone discusses GDI but it is supposed to match GDP. Revisions to GDP and jobs, will be to the downside.
This economy my not be in recession, but it is not as strong as one might think from the baseline jobs report.
Nonfarm Payrolls and Employment Levels
Huge Jobs Divergence Returns, Jobs +339,000 but Employment -310,000
While headline reports cheered the jobs report, few bothered to notice Huge Jobs Divergence Returns, Jobs +339,000 but Employment -310,000
This has been going on for a full year. The above chart shows why GDI is negative. I have not seen anyone else put these pieces together.
People choose to believe GDP, I believe GDI. Heck, there is seldom any talk at all of GDI, and most of the talk you do see, disses it.
But wages have not kept up with inflation, thus falling REAL GDI despite the increase in jobs. This is also impacted by part-time, not full-time jobs, as the driver of job growth for the last year.
It all ties together, if one bothers to look at the pieces instead of listening to headline reports from mainstream media.
Understanding Fed Fears
Out of fear of stoking inflation, the Fed will be very slow to fight any significant weakness.
The Fed has reason to fear. Biden policy is very inflationary on energy, on executive mandates, and on his push for union rules and union wages.
The Economic Outlook
Factor in Fed fears, Biden’s hugely inflationary policies, boomer retirements, falling productivity, and the attitudes of Zoomers, generation Z, with memes like Act Your Wage.
Q: What do you have?
A: At best a forecast for a long period of weak or near-recession growth, coupled with an asset bubble in houses and stocks.
Good luck with that.
This post originated on MishTalk.Com.
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Mish
Savings dissipated in financial investment, or impounded in
idle savings, or as leakages in transfer payments, are stoppages in the flow of
funds derived from the main income stream and have a direct and immediate
dampening impact on the economy.
The Fed will do whatever it needs to, in order to keep the asset bubbles intact. If it takes doing enormous QE while maintaining current interest rates (or even raising those rates), so be it.
AD”. There’s a surplus of loan funds over real investment outlets. The FED’s Ph.Ds. don’t know a debit from a credit. They dismiss a change in velocity as a change in the demand for money. Contrary to Dr. George Selgin, banks don’t lend deposits. Deposits are the result of lending. All bank-held savings are frozen, lost to both consumption and investment, indeed to any type of payment or expenditure. It’s stock vs. flow. Japan is a perfect example.
Japan’s “lost decade” is due to the impoundment and ensconcing of monetary
savings in their banks. The BOJ has unlimited transaction deposit insurance,
the Japanese save more, and keep more of their savings in their banks.
“Japanese households have 52% of their money in currency & deposits, vs
35% for people in the Eurozone and 14% for the US.”
Barring a black swan event I see nothing but slow growth ahead for a period of years (with the occasional negative quarter thrown in). No collapse. No catastrophic market crash. Call it stagflation if you want to.
during the Great Depression, John Maynard Keynes said, “When the facts change, I change my mind. What do you do, sir?”