Estimating Further Negative Revisions to GDI For the First Quarter

The BEA’s initial GDI growth estimate for the first quarter was 1.5 percent, later revised to 1.2 percent. I expect further negative revisions. Here’s a “What if” take.

The math is a bit complicated, and I made some assumptions that the BEA is in the ballpark with its starting point.

So take this with a bit of skepticism.

Starting Point

My starting point is Gross Domestic Product (Third Estimate), Corporate Profits (Revised Estimate), and GDP by Industry, First Quarter 2024

• Real gross domestic income (GDI) increased 1.3 percent in the first quarter, a downward revision of 0.2 percentage point from the previous estimate.
• Current-dollar personal income increased $396.8 billion in the first quarter, a downward revision of $7.7 billion from the previous estimate.
• Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) decreased $47.1 billion in the first quarter, a downward revision of $26.0 billion from the previous estimate

I expect more negative revisions. My lead chart plays “what if” with some numbers.

I would not at all be surprised by much larger revisions.

What If Generalized

Assuming no revision to 2023 Q4 GDI, I estimate that each $5 billion net revision to GDI will result in a change to GDI of about 0.09 percentage points.

I have never tried this before but here goes: I guess we will see a net total revision in income of -15 to -10 billion (mostly from corporate profits) corresponding to a -0.3 to -0.2 percentage point change in GDI from the previous estimate.

If accurate, the spread between GDP and GDI will rise.

GDP vs GDI

• GDP and GDI are two measures of the same thing. GDI counts what all participants in the economy make, including wages, rental income, and corporate profits.
• GDP measures the value of the goods and services that the economy produces.
• Real means inflation-adjusted.
• The gap between GDP and GDI is the biggest on record.

Estimating GDI for 2024 Q2

GDI is not available in the advance estimate of GDP. But the biggest component, personal income, is already published.

The St. Louis Fed does not have real personal income so I downloaded nominal personal income then did the real calculation myself.

Nominal personal income is 23,881.9 subject to change.

From that I calculate real personal income for 2024-Q2 as 19,118 billion, up from 19,035 billion.

In percentage terms, look for real personal income to increase 1.75 percent (seasonally-adjusted annualized rate, my calculation) in 2024 Q2.

Real Disposable Personal Income will be much lower. Disposable means after taxes.

Real Personal Income at 1.75 percent compares with a reported 2.8 percent rise in real GDP in the 2024-Q2 Advance GDP Report.

What About Corporate Profits?

I suspect they will go down. Things are not exactly going gangbusters in technology.

For example, Intel Announces 15,000 Job Cuts, 15 Percent of its Workforce

Unfortunately, all of this is a moving target. It is easier to guess revisions than come up with an initial estimate.

GDI is not available yet because we do not have corporate profits yet.

But we already have an advance number of Personal Income from which I calculated Real Personal Income.

To make a guess at Real GDI, we need to guess where corporate profits are headed.

We also need to guess whether Real Personal Income will change.

I don’t have a good handle at estimating initial corporate profits. So for now, I am not making a guess at other than the “what if” table above for Q1.

I don’t have a GDI framework for other than revisions, and the general framework chart above is specific to 2024 Q1.

So don’t apply my generalized revision table to an initial Q2 GDI estimate or you may get some wild results.

This is a work in progress. Let’s see how things go.