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“No Recession” Idea Based On GDI Was Just Revised Out the Window

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34 comments on “No Recession” Idea Based On GDI Was Just Revised Out the Window

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Real GDP, Real Final Sales, and Real GDI data from BEA, chart by Mish

Understanding GDP vs GDI

There are two measures of the economy Gross Domestic Product (GDP) and Gross Domestic Income (GDI). 

They measure the same thing but with time lags and discrepancies in between. GDI has been record percentages above GDP.

Many people had faith in GDI, or averages of the two. 

On an Income Basis the Economy is Humming, GDP says No, Which is Believable?

On September 6, I asked and answered the question On an Income Basis the Economy is Humming, GDP says No, Which is Believable?

Those who think we are not in recession place a lot of faith in GDI. But what is so believable about GDI?

The debate goes like this.

Recession Believers: Housing is crashing, real wages are declining, and real spending is at best stagnant. The yield curve is screaming recession. Target has warned three time, Walmart once, and the Fed is on a rate hike rampage.

Recession Disbelievers: Jobs are strong and so is GDI.

This one is not even close, but people will believe what they want. Jobs are a lagging indicator, and due to massive losses in the Covid recession, I fully expected a minimal rise in unemployment this recession. 

A likely explanation for the divergences is boomer retirements coupled with approximately 2 million people taking extra part time jobs to make ends meet due to high inflation.

But no matter what the explanation, all the pieces point to a GDI that’s not happening. 

It’s amazing that people think this economy is doing well when it’s obvious that it isn’t. 

Expect Big BEA Revisions

“I inquired and a BEA economist said (a) it’s probably mostly due to janky 2021/22 QCEW seas adj. caused by Covid weirdness; and (2) strongly hinted Sept will see big annual revision.”

I posted this Tweet about a big annual GDI revision 

Massive GDI Revisions 

Today the BEA released its “Final”  for 2022 Q2 (to be revised later) estimate of GDP along with revisions to 2022 Q1.

GDP did not change but GDI did, in a major way.

And for Q2, GDI was unchanged. For those who believe in averages, the average of GDP and GDI for Q1 is also negative.

GDP and GDI Before Revisions 

GDP and GDI After Revisions 

Recession Underway 

Guess what econ fans. A recession has started. If there are more revisions they are likely to be negative as well.

I still expect a third quarter of negative GDP. But really, who cares?

As commented on August 19, Expect a Long Period of Weak Growth, Whether or Not It’s Labeled Recession

GDPNow Forecast for 2022 Q3 Barely Positive Despite New Home Sales Surprise

Meanwhile please note GDPNow Forecast for 2022 Q3 Barely Positive Despite New Home Sales Surprise

This post originated at MishTalk.Com

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34 Comments
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Captain Ahab
Captain Ahab
3 years ago
Is this to be called the Great Dementia Recession in honor of president Cluster Fudge, who has already forgotten about it?
Last week I took a stroll through my ‘bell-weather’ retailers. A couple were near empty on Saturday and Sunday. A limited sample, yet real final sales weren’t just flat, they’re down, down, down. Mish’s early call was right, IMHO.
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vanderlyn
vanderlyn
3 years ago
higher interest rates are here, and more coming down the pike. seems like a wonderful thing for savers, whether working or retired. jobs today are plentiful. having 2 jobs is not a bad thing. in the rich world, we all have a ton of time, sitting down. even our blue collar jobs use tools that don’t require much calories to expend. if this is a recession it is like none ever in the history of my now 7th decade of life. and i’m a history buff. not a recession or depression if those words have any meaning left. i know a ton of young folks with 2 jobs. they seem very content making and saving dough. that’s an anti recession, imho. sorry kids, the times they are a changing, but it’s really quite good. let’s also reflect as the economist newspaper points out, the USA now has a domestic industrial policy which is spending as much as percentage of our economy as the french germans and japanese. this is a brand new development. after 42 years of raygunomics which was anti domestic industrial policy. raygun tripled the debt and doubled the military. do you think spending money to rebuild fort meyers is preferable to rebuilding baghdad………i’d prefer a corrupt politician and construciton company in USA getting the funds than their counterparts in pakistan or saudi or iraq or ukraine……………………….this is major league change. i think most miss it. so recent.
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Salmo Trutta
Salmo Trutta
3 years ago
Basically, the economy is being run in
reverse. It now has a credit/investment imbalance. S ≠ I with the payment of interest on
interbank demand deposits.
There’s a lack of investment opportunities
(secular stagnation or chronically deficient AD). I.e., it’s stock vs. flow. All bank-held savings have a zero payment’s velocity.
George Bailey’s “It’s a Wonderful Life” was derived by
putting savings back to work, where velocity was 2/3 and money was 1/3. The
banksters seeking to gain a larger portion of the loan pie, drove up Reg. Q
ceilings, inducing nonbank disintermediation (decelerating the velocity of circulation). The nonbanks in the Golden Age in Capitalism, as opposed to the banks, necessarily, quickly invested their funds.
The suppression of interest rates (decline in real rates of interest) boosts asset prices (the opposite of “trickle-down economics”)

We have Karl Marx’s
rentier capitalism. Why do you think murder rates are rising? Social behavior
is pre-programmed.

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PapaDave
PapaDave
3 years ago
Reply to  Salmo Trutta
A lack of investment opportunities? Is that even possible? There are always opportunities, particularly for the sophisticated investor.
I am NOT a very sophisticated investor, yet I see oil stocks returning 20+%/a for the rest of this decade. So I have a substantial position that is “buy and hold”.
And I have a trading position to take advantage of the day to day volatility.
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Salmo Trutta
Salmo Trutta
3 years ago
Reply to  PapaDave
When you decrease the demand for loan funds (debt monetization), and simultaneously increase the supply of loan funds (QE), interest rates fall.
You’re a lot smarter than the average investor. Peak oil is not something that everyone yet follows.
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Casual_Observer2020
Casual_Observer2020
3 years ago
Florida had a once in 500 year event that will happen a few more times this decade. Dislocation is going to be the story around the world. Rebuilding in Florida would be a mistake and poor use of capital. Maybe they will call that growth in Q4.
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PapaDave
PapaDave
3 years ago
Reply to  Casual_Observer2020
Sounds like a good topic for Mish to do analysis on: what are the past, present and future economic impacts of global warming, climate change, and the extreme events that are associated with it? What are the positives. What are the negatives. And what are the investment opportunities.
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TexasTim65
TexasTim65
3 years ago
Reply to  Casual_Observer2020
Why would it be a mistake to rebuild in Florida?
I can understand the idea that building on barrier islands is a mistake because those flood and wash away easily but what about all the people on the mainland who just suffered partial damage (roof off or minor flooding)?
Are you going to apply the same logic everywhere else? Is it a mistake to rebuild in California where there are wildfires or on hills with mudslides never mind earthquakes)? You go down this path and pretty soon there won’t be anywhere you can build because there will always be *something* that can go wrong (earthquake, volcano, hurricane, mudslide and so on).
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vanderlyn
vanderlyn
3 years ago
Reply to  TexasTim65
bingo. winner here.
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RonJ
RonJ
3 years ago
Reply to  Casual_Observer2020
The U.S. had a new record 12 years without a major hurricane, after Katrina. it flew in the face of the global warming narrative. This year there were no hurricanes in August. That also flies in the face of the global warming narrative. No one really knows what the future holds.
No one should have built in New York City. It is the site of a glacier. Same goes for most of Canada. Considering that humans have no fur, all should be located within X latitude of the Equator. Of coarse, humans figured out how to make nice fur coats, so some live at the northern tip of Alaska, in Utqiagvik.
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vanderlyn
vanderlyn
3 years ago
Reply to  Casual_Observer2020
HUMANS have always built cities in dangerous places. see venice or amsterdam and on and on. FL is a nothing burger. especially with the Biden Bucks heading there.
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klausmkl
klausmkl
3 years ago
America is at War. The draft will be coming very soon, to a theater near you. Soon, Gen X and Millennials you will be in a real life War, no video game. We haven’t seen anything yet. My Retirement of 23 years ends very soon. When draft starts labor will be very short. Every swinging dick will be doing something, you reading this too.
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Business Man
Business Man
3 years ago
Reply to  klausmkl
It was Gen X who paid the price in Iraq and Afghanistan. And some beginning Millennials in Afghanistan.
Your characterization would be more accurate for Gen Z, who are still playing video games.
And, they will not be drafting Gen X. The youngest Gen X right now is 42, and the oldest about 52ish. Unless we are attacked in the homeland, there will be no draft, simply because it will destroy the party that proposes it.
And in case you haven’t looked around, the producers in this country are all exhausted, working overtime in their businesses, trades and jobs. There is a dearth of qualified, high work-ethic individuals to get the necessary work done. The Pandemic gave a lot of people a taste of not working, and many decided they liked it. THAT is the source of the “supply chain woes.”
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Too much BS
Too much BS
3 years ago
The Boom just went Bust Cause the government spent way too much. https://youtu.be/DcVQQ_uVRIk
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worleyeoe
worleyeoe
3 years ago
“Jobs are a lagging indicator, and due to massive losses in the Covid recession, I fully expected a minimal rise in unemployment this recession.”
My gawd, Mish! According to you, we’ve been in a recession since April. First time jobless claims just hit 193K, a very low number as you well know. The September jobs number will most likely remain positive.
How many months does it take for jobs to stop being a lagging indicator? If jobs are still positive in January, are you going to say they’re still lagging? You’ve been making the same case for GDI now for three months. Give it a rest. Just say:
With $13T in stimulus enacted over the past 30 months, trying to figure out when we actually hit a TRUE recession will be harder than ever to figure out.
Here’s a quick update on my local RaceTrac gas station recession leading indicator: @ 7 am last Friday, every single gas pump and the entire parking lot was packed. You’d spend 5 minutes just trying to find a parking spot. We’re not in a recession. Period! And, I don’t care one bit what twisted logic we’re using as it relates to GDI.
Cheers!
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worleyeoe
worleyeoe
3 years ago
Reply to  worleyeoe
Wolf Richer has a great un-employment-based review of past recessions. Let me summarize:
Initial un-employment claims run at least 400K before the NBER declares a recession. Again, this past fell to 193K.
Continued un-employment claims run at least 3M and above before NBER declares a recession. We’re at 1.347M.
The NBER IS NOT GOING TO DECLARE A RECESSION ANYTIME SOON. The labor market is WAY TOO strong. Retail sales are still too strong. August existing home sales prices rose 7.7% YoY. New home prices dropped slightly as builders continued to manage strong profitability. Industrial output remain modestly solid.
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Mish
Mish
3 years ago
Reply to  worleyeoe
Retail sales suck
But yes, the NBER will wait until it is obvious
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worleyeoe
worleyeoe
3 years ago
Reply to  Mish
Retails sales have been positive for 10 out of the last 12 months.
They don’t suck!
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vanderlyn
vanderlyn
3 years ago
Reply to  worleyeoe
BULLY BULLY
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PapaDave
PapaDave
3 years ago
“I still expect a third quarter of negative GDP. But really, who cares?”
Not me. Slow growth. Long, mild recession. Its all the same to me.
As long as there isn’t a long and deep recession, then energy demand will continue to grow. While supply is constrained.
World and US oil inventories continue to fall. SPR releases end in a month. Chinese demand is coming back. Euro sanctions on Russian oil begin in December. OPEC is tapped out and may even trim production if they feel that is necessary to support prices. Russian production is dropping. And I expect more energy “sabotage” going forward.
Got oil?
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PapaDave
PapaDave
3 years ago
Reply to  PapaDave
Meanwhile, in a good news, good news story:
Even though summer driving season is over, refiners are still pushing fuel production before switching over to winter runs. The reason is the strong demand and huge profits on diesel. Diesel is 27% of a processed barrel of oil, while gasoline is 46%. So while they will make a killing on diesel (and export some of it at crazy high prices), the extra gasoline production will help keep gas prices down in the US for a while longer. Though I still expect gasoline to average over $4 by year end.
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JRM
JRM
3 years ago
Reply to  PapaDave
There is a problem with your analogy, gas prices are going back UP!!!!!
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PapaDave
PapaDave
3 years ago
Reply to  JRM
Wow. Brilliant.
Duh.
Extra supply is still helping to keep prices lower than they otherwise would be.
But, as I said, prices will still go up into the end of the year. Just not as fast or as high; because of the extra production.
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TexasTim65
TexasTim65
3 years ago
Reply to  PapaDave
The 46% that’s gasoline can’t be turned into anything else. In other words no matter what the refiners do with the other 54% of the barrel, the 46% will always be gas.
So whether they switch to winter runs or not, the amount of gas produced will be the same. Unless you are saying that refiners refine fewer barrels in the winter due to less demand / facility maintenance?
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PapaDave
PapaDave
3 years ago
Reply to  TexasTim65
Two things. They are running flat out. 92-94% of capacity. Which is pushing it. Things can break when you push it. Normally at this time of year, refineries are easing back and getting ready for winter runs. Which means they are extending the current fuel runs as long as possible to maximize diesel production.
The extra gasoline produced will help keep gas prices lower than they would otherwise be, but they will still increase going into the end of the year, just not as high or as fast.
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RonJ
RonJ
3 years ago
Reply to  PapaDave
Specific to California, we are having refinery issues from scheduled and unscheduled maintenance. Price jumped 14 cents two days ago.
price where i shop had gotten down to at least 5.05. Last weekend was 5.25 and Wednesday was 5.69. I have lost track of the average price, which i believe is back up to 6 bucks now.
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PapaDave
PapaDave
3 years ago
Reply to  RonJ
I tend to look at national numbers. But your individual state numbers demonstrate how local prices will rise when nearby refinery run rates are reduced due to maintenance, planned or otherwise. I am still expecting national gasoline prices to average over $4/gal by the end of this year.
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JRM
JRM
3 years ago
Reply to  PapaDave
Philippines is the latest country moving to buy Russian gas and oil…
Hilarious that the Taliban just signed a trade deal with Russia!!!
All those idiots that claimed there was a fuel shortage in Afghanistan were not “LIVING IN THE REAL WORLD”!!! All they had to do watch the live video broadcast coming out of Kabul and Khandahar on BBC, to realize “THEY WERE LYING”!!!
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PapaDave
PapaDave
3 years ago
Reply to  JRM
That’s nice.
But its just more of your meaningless drivel.
Russian production is still dropping. Which is what matters to me.
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PapaDave
PapaDave
3 years ago
Thank you for bringing GDI into the discussion. I believe that it is good to look at multiple indicators, as each individual indicator has its own limitations. I hope that you will continue to use both GDP and GDI in your economic analysis going forward.
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MPO45
MPO45
3 years ago
The Wall Street Journal had an article, “Why Are Companies Still Hiring When GDP Is Shrinking” (paywall link below) but in a nutshell, companies are afraid of losing workers and not getting them back. I think most CEOs and Boards are finally coming to the realization that there is a demographic crisis in the US. Layoff skilled/professional employees at your own peril because someone else will snap them up and once they quit they are likely not coming back.
It’s not just boomers retiring. It’s older 50+ workers that are ill, overweight, sick with diabetes or prostate cancer or some other illness. Social security has been adding 5.5 million new recipients yearly and there should only be about 1.5 million boomers retiring. Something isn’t adding up with the labor force in America and SS enrollments.
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MPO45
MPO45
3 years ago
Reply to  MPO45
Here is proof of how scared some companies are with return to office canceled.
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vanderlyn
vanderlyn
3 years ago
Reply to  MPO45
BINGO. YOU GET IT. mish misses this very pertinent point. if this is a recession, i’ll never want it to end. best of times for workers since 1960s or so.
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Six000mileyear
Six000mileyear
3 years ago
The markets are on the verge of gapping down multiple days in a row for large percent losses. In US markets, there is little support until the COVID19 lows.
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