The Philadelphia Fed GDPplus measure, a blend of GDP and GDI, is flashing a signal that recession has already started.
GDPplus is a measure of the quarter-over-quarter rate of growth of real output in continuously compounded annualized percentage points.
It’s a blend, but not an average, of Gross Domestic Product (GDP) and Gross Domestic Income (GDI). It is much smoother than either GDP or GDI as the above chart show.
Improving GDP Measurement: A Measurement-Error Perspective
Please consider a 2013 working paper on GDPplus, Improving GDP Measurement: A Measurement-Error Perspective
Aggregate real output is surely the most fundamental and important concept in macroeconomic theory. Surprisingly, however, significant uncertainty still surrounds its measurement. In the U.S., in particular, two often-divergent GDP estimates exist, a widely-used expenditure-side version, GDPE [widely called GDP], and a much less widely-used income-side version, GDPI [GDI].
Nalewaik (2010) and Fixler and Nalewaik (2009) make clear that, at the very least, GDPI deserves serious attention and may even have properties in certain respects superior to those of GDPE. That is, if forced to choose between GDPE and GDPI , a surprisingly strong case exists for GDPI. But of course one is not forced to choose between GDPE and GDPI, and a GDP estimate based on both GDPE and GDPI may be superior to either one alone.
The rest of the paper is for Geeks only. The important points are as follows.
A strong case can be made for accepting GDI as a better measure of GDP than GDPE but a blend, not an average, would be even better.
I put that theory to test by looking at every recession since 1960, 9 cases in all.
GDPplus vs Recessions Since 1960
In 100 percent of the cases, with no false signals, no misses, and no lead times more than two quarters, every time GDPplus had two consecutive quarters of negative growth, the economy was in recession.
GDPplus Recession Signals
GDPplus Recession Signals Synopsis
- GDPplus signaled every recession
- GDPplus was on time 4 times, early by a quarter 3 times, and early by 2 quarters twice.
This makes it appear as if GDPplus is a leading indicator. It isn’t because the data is heavily revised.
The BEA makes revisions frequently, especially on GDI. And since GDPplus is more reliant on GDI, it also has significant swings.
Also, the BEA does not release GDI in the first estimate of GDP, but somehow the Philadelphia Fed projects GDPplus anyway.
Recent Revisions
Yesterday, the GDPplus numbers for the past three quarters starting with 2022 Q4 were, in order, -1.1 percent, -0.4 percent, +1.5 percent.
Today, those quarters are -1.2 percent, -0.7 percent, and +0.6 percent.
Over time, the strength of revisions decreases greatly.
Thus, the first two numbers are increasingly likely to stay negative now given the decline from -0.4 percent to -0.7 percent for 2023 Q1.
Negative Revision to 2nd Quarter GDP, Huge Discrepancy with GDI Continues
Earlier today I commented Negative Revision to 2nd Quarter GDP, Huge Discrepancy with GDI Continues
GDI is still consistent with a recession starting 2022 Q4. GDP isn’t. The NBER, the official arbiter of recessions, averages the two measures. The result is inconclusive for Q4 and Q1 combined.
Don’t be surprised if the NBER declares we had a recession and it is already over. It’s happened before.
Last Three Quarters Comparison
- GDP: +2.6 percent, +2.0 percent, +2.1 percent
- GDI: -3.3 percent, -2.8 percent, +0.5 percent
- Average of GDP and GDI: -0.4 percent, +0.1 percent, +1.3 percent
- GDPplus: -1.2 percent, -0.7 percent, and +0.6 percent.
The Averages of GDP and GDI are from the St Louis Fed.
Of those, I strongly suggest based on past performance GDPplus offers the best recession signal.
Problems –higher interest rates, China, Real Estate, and EU — are headwinds that could easily tip GDP negative. Bigger “benchmark revisions” may take care of that.
The problem with GDP is it includes hurricane recovery, but not hurricane destruction. A balance sheet approach would be better: write down Florida during the hurricane, write it back up during reconstruction, and then write down the government and insurance companies.
Is there a term in economics for the opposite of ‘pent up demand’?
Consumption constipation.
With Barbie, and Taylor being the major 3rd Quarter mover of the economy, anything is possible. I think major weakness began in 2nd Quarter 2022. Stock Buybacks do not constitute National Economic Growth, only personal economic growth for a few.
barbie is a true amerikan hero. ken never did have a set of testes, or perhaps he was mutilated as an infant in the savagery of circumcision of goat herding ancient customs.
GI JOE was missing genitals. and you wonder why our boomers lost every war since 1945. ex grenada of course.
BEA released some not so happy Fed news:
Personal income increased $45.0 billion (0.2 percent at a monthly rate) in July, according to estimates released today by the Bureau of Economic Analysis (table 3 and table 5). Disposable personal income (DPI), personal income less personal current taxes, increased $7.3 billion (less than 0.1 percent) and personal consumption expenditures (PCE) increased $144.6 billion (0.8 percent).
The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.2 percent (table 9). Real DPI decreased 0.2 percent in July and real PCE increased 0.6 percent; goods increased 0.9 percent and services increased 0.4 percent (tables 5 and 7).
link to bea.gov
Choo! Choo! The economic money train has left the station, were you onboard?
To reiterate what I’ve been saying all along, restricting demand isn’t the only way to reduce inflation.
Build more homes and home prices will decrease, yield more crops, food prices decrease, more solar/wind electricity, energy prices decrease.
Maybe if we stop the knee-jerk Xenophobia at the border and create policies to put them to work, a lot of this would be fixed, my Irish ancestors would certainly attest so.
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the idiot talk of a recession was always very stupid. wishful thinking against an obvious bout of runaway cumulative inflation and bottled up spending spree of immature boomers etc……..who only know how to spend and consume…………and the double idiocy is not knowing who owns the FED. my god, the middlebrows of pax dumbphuckistan know NO depths. bottomless pit of idiocracy. it’s quite entertaining. i truly LOL every day. long live dumbphuckistan.
The choral Mainstream Media will have to get on the “It’s actually a recession” for a recession to occur. THAT will not happen into the “Erection Cycle” (Ooooppps, meant, eLection cycle)….
Chinese Democracy?
ED : erection disfunction candidates.
Maybe that’s because it did…
raygunomics. debt doesn’t matter. free market for middlebrows and socialism for C suite in military industry and wall street. the rest is eyewash. he was a great huckster and grifter. gave the people what they asked for. a free lunch. but alas the lunch was encumbered with debt for their children to pay.
1) A war is breaking out between labor and mgt. It’s all about power :
WFH, 40% wage increase, health benefits, retirement, 32 hours/week…It’s a fight
for existence, about corp life and death.
2) A war is breaking out about gov spending and gov $33T debt accumulation.
3) A war is breaking out between our deeply divided two political parties and presidential nominees.
4) Inflation is caused by exogenous “events”. Endogenous “events” might lead to
our spiral destruction, to deflation.
5) ES might be turning around since June 16 high. If we are in recession the Dow
has to show it first. Foreign investors are buying US long term treasuries. Demand
for the long duration is rising, because they bet on deflation.
All interesting and true points.
This in particular has me interested –
“1) A war is breaking out between labor and mgt. It’s all about power :
WFH, 40% wage increase, health benefits, retirement, 32 hours/week…It’s a fight
for existence, about corp life and death.”
Since the advent of Reaganomics, CEO salaries have exploded while household debt/government debt has exploded and median hourly wages have been flat.
It seems like free market capitalist price discovery might be rearing its head in labor, perhaps decades of fiscal and monetary imbalance paid for via campaign donors has met its limits.
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garbage in, garbage out! i meant Philadelphia Fed GDPplus Measure!!
just stupid numbers.
just post chart of sold cars, houses, etc etc. number of big-ticket items sold for USA population.
if physical number is up, economy is up!
alx
If the recession started in Q4 2022, Is it already over?
Did everyone miss it? Not much of a recession.
Some people still aren’t getting it. The labor market has fundamentally changed. I will repeat it again, too many people retiring and not enough young people to replace the retiring/expiring. This problem will grow worse over time not better even with immigration reform because skills take years to develop.
If you want to take a look at how bad it is, look at the job ads Burger King is doing now asking “Who says your need to retire” begging retired seniors to come back to work flipping burgers. When in the history of your lifetime have you seen something so desperate?
link to reddit.com
In my view, a true recession needs to have lots of job losses that cause loss of income which reduces consumption. We aren’t going to get that because retired people get money and healthcare from social programs and will keep spending and job losses won’t happen because too many people are retiring.
There will be some industries that will ultimately go bankrupt because the labor won’t be there or other factors but it will be relatively self contained.
Only war or major environmental disaster will change anything. Maybe Congress will make working 20 hours per week mandatory to receive social benefits, that has a high chance of picking up steam.
One thing you are missing in your analysis are all of the sick and dead people caused from the infamous jab……
Toot toot!
“Safe and Effective”
Toot, Toot
Both of them?
If anyone is interested in learning about the effects of the jabs I suggest you go to naturalnews.com. There are other countries that used the same vaccines we did and are releasing their figures/info. CEO’s from multiple insurance companies have advised excess deaths are up 40%.
exactly. correct. jobs a plenty for long time. i think it is great. the boomers had it so easy. let the kids at least have no problem servicing all us geezers. dentists to chefs to drivers and plumbers………
– Maybe Congress will make working 20 hours per week mandatory to receive social benefits.
> IMO there Always should have been work requirements for social (welfare) benefits. To care for just about anything, you need skin in the game. If you are a Citizen and collecting benefits, that are paid by other Citizens that are Working To Pay said benefits, then you should “Have To Work” If You Can (I am sure there are hundreds of jobs that need to be done, that these collectors of other peoples work efforts , can do. The ones that can’t work, go into a separate pool and collect benefits labeled differently (Needed Care), and get checked (physical, bloodwork etc. to see how hard they have worked for getting out of that pool). And if they fail they are removed from benefits, and if the succeed, then they move out of that pool into the work pool (also checked monthly to be removed from that pool and rejoin society at large.
“Maybe Congress will make working 20 hours per week mandatory to receive social benefits.”
And, for consistency, 200 hrs/week; in order receive the 100 times larger benefits handed out every year since 1971, by way of debasement driven asset pumping.
Sure: “Social benefits” is economically inefficient. But, in practice, as opposed to perhaps in Sweden under Olof Palme; it’s no more than a trifle roundoff.
These days, the only transfers which are meaningful at all; are the transfers conducted via “asset” channels. Add up EVERYTHING else, and it doesn’t even come within an order of magnitude of “home price appreciation”, “rent”, stock “market” “gains” or other such crass and arbitrary wealth transfers from those less politically favoured to those more so.
Pounding away at some 1% triviality, while at the same time being too dense to notice the absolutely gigantic elephant dwarfing it, has got to be one of history’s greatest examples of collectively indoctrinated myopia. Par for the course for the #DumbAge, no doubt.
Recession in real dollars I believe. Wondering if the stock market still goes up based on earnings in inflated dollars. Any thoughts?
here is what i do NOT get. like inflation pricing is cumulative, what is the big whoop if we aren’t increasing growth for some ridiculously short time frame like a quarter or year. especially when those numbers count idiotic things like the military industrial complex and government growth in spending. no offense but it has nothing to do with any reality in the world of daily economic life of human primates, does it? the old misery numbers of inflationary pricing increases on ordinary spending for lady at the grocery and street, and the availability of jobs. jobs are a plenty. i still don’t know of anyone OUT of work. but pricing for most ordinary items are ridiculous. that is a common complaint i hear and feel. from the wealthy to the lowest working class.
The minute the growth stops, all the people leveraged to the bone can’t meet their obligations.
Thats why the govt wants 2% inflation as the baseline. It erodes the present day value of debt. I prefer 0% inflation but what do I know. Every govt in history when they get into the debt quagmire were in they inflate away the debt. Something to look forward to. Lever up.
You’re leveraged to the hilt through government borrowing, and you don’t count it.
This is an important detail, where the CFTC can’t disclose positions in commodity futures the way the regular market does, (thanks to the CFMA), we have absolutely no way of knowing if commercial banks have been manipulating prices…. should lumber really have been up 300% in 2021?
RE: the 2008 crash, it was revealed two years later that those banks (GS, Citi, MS, etc) manipulated oil prices, had nothing to do with supply or demand, which then initiated the onslaught of sub-prime defaults through restricted disposable incomes.
Placing government regulation in the hands of private/profitable entities never benefits the populace.
“The minute the growth stops, all the people leveraged to the bone can’t meet their obligations.”
Not “all the people leveraged to the bone.” Only all the people leveraged to the bone whose personal growth happens to exactly match some useless, made up, government “measure.”
People can’t meet obligations all the time. Not nearly as often as would be the case in a free market; courtesy of massive, debasement driven Fed transfers of wealth to their friends.
But still: No matter how “great” some arbitrary government number is, there will always be someone who can’t meet their obligations. And conversely, no matter how “bad” it is, there will always be someone who still can meet their obligations.
Like all else, it’s a continuum. There is no real world discontinuity right at the zero point for any made-up number.
Instead: The real reason why dumb people obsess over such things, is that continuous functions are harder to comprehend than arbitrary either/or classifications. For all the dimbulbs who are constrained to a world of one, two, many…..
Over fitting is a hell of a drug.
Hope springs eternal.