Yesterday the BEA released the second estimated of first-quarter 2023 GDP. The GDP rose from +1.1 percent to +1.3 percent. And personal consumption expenditures (PCE) rose from +3.7 percent to +3.8 percent.
The BEA does not release GDI in the advance estimate, but does in the second estimate.
GDI was -2.3 percent in the first quarter of 2023, and -3.3 percent in the fourth quarter of 2022.
That’s recession territory, but GDP isn’t.
GDP and GDI Details
- Real gross domestic product (GDP) increased at an annual rate of 1.3 percent in the first quarter of 2023 according to the “second” estimate released by the BEA. In the fourth quarter, real GDP increased 2.6 percent.
- The updated estimates primarily reflected an upward revision to private inventory investment.
- The increase in real GDP reflected increases in consumer spending, exports, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by decreases in private inventory investment and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
- Real gross domestic income (GDI) decreased 2.3 percent in the first quarter, compared with a decrease of 3.3 percent (revised) in the fourth quarter.
Corporate Profits
- Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) decreased $151.1 billion in the first quarter.
- Profits decreased of $60.5 billion in the fourth quarter.
- Profits of domestic financial corporations decreased $25.4 billion in the first quarter, compared with a decrease of $59.0 billion in the fourth quarter.
- Profits of domestic nonfinancial corporations decreased $109.3 billion, compared with a decrease of $22.9 billion.
- Rest-of-the-world profits (net) decreased $16.4 billion, in contrast to an increase of $21.4 billion.
Average of GDP and GDI Also Signals Recession
The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, decreased 0.5 percent in the first quarter, compared with a decrease of 0.4 percent (revised) in the fourth quarter.
The BEA discusses the average of GDP and GDI because that is what the National Bureau of Economic Research (NBER) uses as an input to determine recessions.
Even if one averages the numbers, a recession is possible if not likely.
But the NBER is so delayed on its determination.
By the time the NBER releases a recession announcement, it will be clear which one of these sets of numbers is wrong.
Revisions
A recent GDP revision was in the direction of GDI.
Given that heading into recessions, most revisions tend to be negative, and positive out of recessions, there is no strong reason to pooh-pooh GDI.
Real Disposable Income is Flat, But Real Spending Jumps 0.5 Percent
Earlier today I noted Real Disposable Income is Flat, But Real Spending Jumps 0.5 Percent
Also note Trade Deficit in Goods Jumps 17 Percent as Imports Surge and Exports Plunge
The latter report sent the GDPNow forecast down from 2.9 percent to 1.9 percent for the second quarter of 2023.
This post originated on MishTalk.Com.
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Mish
[…] And while US real GDP has risen, that is not reflected in domestic income growth. There is a significant divergence between the gross domestic product (GDP) and gross domestic income (GDI). That divergence is due to both wages and profits (after inflation) falling. So, on a GDI basis, the US economy is already in recession. […]