The discrepancy between GDP and GDI widens again. Belief in GDI makes more sense.
Today the Third Estimate of GDP from the BEA is an increase of 3.1 percent at an annualized quarterly rate.
GDP
The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 2.8 percent. The update primarily reflected upward revisions to exports and consumer spending that were partly offset by a downward revision to private inventory investment. Imports, which are a subtraction in the calculation of GDP, were revised up.
A Word About Imports
Please note that imports have no impact on GDP and cannot by definition. The D in GDP stands for Domestic.
The BEA’s statement “Imports, which are a subtraction in the calculation of GDP, were revised up,” is accurate but misunderstood.
The BEA subtracts imports in its calculation because it erroneously add imports to GDP when it shouldn’t.
For example, you buy something from Amazon. What percentage of that product is from the US and what is foreign? Apply that question across all of retail sales which add to GDP.
Because the BEA inaccurately adds imports to GDP, it needs to subsequently subtract imports.
Real GDP, Real Final Sales, Real GDI Billions 2024-Q3
Gap Between Real GDP and Real GDI
GDP vs GDI
GDP and GDI are two measures of the same thing. The measure of product sold should match the measure of income and wages produced.
The Philadelphia Fed and others have concluded that GDI is a more accurate measure and I agree.
But GDI lags GDP by one month in Q1, Q2,and Q3. GDI lags by two months in Q4. We will not see GDI until the third estimate for Q4.
Instant Gratification
Because the market always wants instant gratification, we look at GDP instead of GDI.
The same applies to BLS monthly jobs reports are grossly distorted estimates vs QCEW data that encompasses a 95% of the data.
The monthly jobs reports are so bad, the BLS would do everyone a service if it stopped producing them. The same applies with GDP and GDI.
Is Growth 2.1 or 3.1 Percent?
Those who believe the income side of things is more accurate will suggest 2.1 percent.
November 28: Huge Negative Revision of $91.8 billion to Second-Quarter Private Wages
The BEA hugely revised GDI to the downside. Hmm. It seems that voters weren’t fooled.
The reason for the November 28 negative revision is enlightening.
The BEA explained “Today’s release presents revised estimates of second-quarter wages and salaries, personal taxes, and contributions for government social insurance, based on updated data from the Bureau of Labor Statistics Quarterly Census of Employment and Wages program [QCEW].”
Mish July 26, 2024: Expect the BLS to Revise Job Growth Down by 730,000 in 2023, More This Year
At the heart of these revisions is a horribly flawed birth-death model used by the BLS. My calculation closely matches an estimate by Bloomberg’s chief Economist.
Mish August 21, 2024: BLS Revises Jobs Down by 818,000 the Most Ever, About 68,000 Per Month
Do I get to say I told you so? My advance estimate a month ago was 779,000 lower. Bloomberg estimated 730,000.
Quarterly QCEW Data Provides More Evidence of BLS Jobs Overstatement
On November 20, I commented Quarterly QCEW Data Provides More Evidence of BLS Jobs Overstatement
My prior comparisons and advance calls suggest we see negative revisions in nonfarm payrolls from 2023 Q2 to 2024 Q2 of well over one million. My initial stab is about 1.2 million to the downside.
The BLS Birth-Death model is seriously messed up an/or the BLS is oversampling large corporations and under sampling small businesses.
The BLS monthly nonfarm payroll reports are consistent garbage.
December 6: Employment Drops by 355,000 But Jobs Rise by 227,000 in November
The strange jobs reports continue as the divergence between jobs and employment widens again.
I repeat, BLS monthly jobs reports are so bad that the BLS ought to do away with them.
Industrial Production September
On October 17, I noted Industrial Production Unexpectedly Declines 0.3 Percent With Huge Negative Revisions
Industrial production declined 0.3 percent in September. Negative revisions lopped off another 0.5 percent.
Industrial Production November
On December 17, I noted The Fed Releases Another Grim Set of US Industrial Production Numbers
Industrial production is below the January 2008 level. Manufacturing is even more abysmal.
The Inflation Reduction Act, cleverly timed to keep things humming through through the election, helped pad demand for manufacturing durable goods, now crashing.
Expect more negative revisions because they are coming. Meanwhile, enjoy the upward revision to GDP while you still can.
I understand that GDP is calculated as Y=C+I+G+NX but other than the fact that Keynes suggested that, why is G in the calculation at all. arguably, whatever the government spends winds up in the economy and is part of C or I or NX already, especially given the identity that I=Savings, so anything they spend that is saved winds up in I. While this would not change spending per se, wouldn’t it offer an opportunity to determine what the economy really produces more accurately? perhaps this would give a better understanding of the disconnect between the data, that seems pretty strong, and the sentiment around the nation, which doesn’t feel quite the same.
A great benefit would be to exclude government jobs in employment stats as these are not jobs but expansion of taxes. Government employees income are paid for by taxes. Exclude from the general BLS data and published separately. More light should be focused on real jobs and not tax expansion
I’m just a simple man, I don’t know enough about all this GDP/GDI and debt. All I know is that in 32 days, we are all going to a promised land of rainbows and unicorns. Why? because the GOP/Trump will control all branches of government and there won’t be dems obstructing the totally awesome GOP/Trump plan to make America great again.
I also know that in just 5 short years, we’re going to have 80 million socialists asking for more handouts and spending that money like drunken sailors. What could possibly go wrong?
I was just watching Jimmy Dore, who said that Democrats inserted a provision in the CR, to obstruct the DOJ from accessing any data related to the J6 committee. An attempt at obstruction of justice hidden in the 1,500+ pages, that is supposed to be passed without reading.
Did Jeffries write up this CR or did Speaker Johnson?
If you have 350 staffers each would only have to read 10 pages.
Sounds like Washington, D.C.
Every column gets the same comment. Don’t you guys usually spell it tRump?
Your venom aimed at social security recipients is tiresome in that it’s massively unpopular to suggest that, after having forced people to have their income reduced, at “gunpoint” for 40 years in a manner that directly tied it to paying into a “scheme” that provides income after 62 – 70, they then be considered vile pond scum for participating in the only upside to that scheme–as a recipient of social security income. Retirees. Or “socialists” to use your term. One might better argue that it has been sold as a contractual scheme with very clear rules from the jump, right? Why does the receiving of social security bother you so? It’s not like those who aren’t socialist had a choice to participate or not, and they’ve already paid taxes on those contributions as well and will be taxed on them again in most cases. You can argue the scheme was built to pay current retirees while we were contributing but that’s not a bug but by design (flaw). That the numbers don’t add up thanks to longer life expectancies and the Baby Boom generation isn’t new or unexpected.
To constantly imply that they are now suddenly socialist is silly. Are you a socialist when you participate in a tax credit that Congress passes? How about paying much less in long term cap gains taxes than W2 income? Or the million other laws or programs enacted by the bloated bureauacracy? To be a conscientious objector and refuse those would be to ship tax dollars to Washington to the benefit of others but not yourself. That’s financial suicide. We can oppose a massive bureaucracy while also grudgingly participating in it because it’s the only sane thing to do if the game’s rules are as such.
I just find it odd that social security is the hill you choose to die on in your posts. Maybe it’s those darn turtles all the way down? Not saying to drink the unicorn and rainbow kool aid but i don’t think grinding the anti Social Security ax plays well.
What could go wrong?
Not electing Republicans again in 9 short years?
Mish, is there a specific reason why you think GDI is a better measure than GDP recently? Last year, those diverging GDI numbers were revised upwards massively to match the increasingly revised GDP numbers
Devastating look at 4 years of lies about Biden’s condition. The media and the Democratic Party conspired. To read this is to feel ill. Many here defended his condition the whole time. What they must feel now. https://www.wsj.com/politics/biden-white-house-age-function-diminished-3906a839
And Trump is essentially the same age as Biden, what do you think will happen to Trump mentally over the next four years? Your outrage should be that geriatrics keep running this country instead of younger mentally acute people.
I, unlike you, did not deny a mental degradation while trying to lie to the American people. It will never be forgotten. And it is obvious Trump is in a far better mental position at this point. Either way, Trump having an actual vice president as opposed to a retard is kind of a plus don’t you think?
Biden was already senile in 2020. Before that he was just retarded.
He didn’t win in 2020 either
“that geriatrics keep running this country instead of younger mentally acute people.”
Like Kamala?
Rates continue to blow out after yesterday’s massive mistake.