US data: GDP grows 4.9%, unemployment claims rise to 210,000
U.S. gross domestic product (GDP) accelerated to an annual rate of 4.9%, more than twice as fast as in the second quarter and faster than expected.
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There may be an explanation as to why the U.S. economy has been remarkably resilient and growing vigorously despite high inflation and interest rates.
Maybe it’s not so resilient after all.
This week, Ministry of Commerce The economic growth forecast for the third quarter has been revised upward to an annual rate of 5.2%. This would be the fastest increase in gross domestic product (the value of all goods and services produced in the United States) since the fall of 2021, when pent-up demand after the pandemic was still exploding.
But lesser-known economic indicators tell a completely different story.
Gross domestic income (GDI) rose at an annual rate of just 1.5% in the July-September period, slowing growth over the past year despite steady GDP growth. Over the past four quarters, GDP increased by 3%, but GDI decreased by 0.16%, according to an analysis of commercial statistics by Joseph LaVogna, chief economist at SMBC Nikko Securities.
This is the largest discrepancy between the two metrics in recent memory.
The total level of GDI is also 2.5% below GDP, the biggest difference since 1993, according to Barclays economist Jonathan Miller.
LaVogna argues that the GDI is good at picking up early signs of the recession that many economists believe will hit the U.S. next year.
“I think GDP overstates the strength of the economy,” LaVogna said.
The debate over which economic measure is better is not just academic. The Fed may want to wait until the economy stabilizes before deciding that inflation has receded enough that it doesn’t need to raise rates again.
What is the difference between GDP and GDI?
GDI is an alternative method for measuring economic output. GDP aggregates all spending by businesses, consumers, foreign companies, and governments by conducting extensive surveys of retailers, car dealers, manufacturers, and more.
GDI estimates all income in the form of wages and salaries, corporate profits, interest and dividends, and rent.
In theory, the two gauges should add up exactly the same because every dollar someone spends is another person’s income. In reality, however, the two often diverge because the data are collected from different sources and through different surveys, and both are subject to sampling error.
Over time, GDP and GDI tend to converge, either because one indicator catches up with the other or because of revisions that affect both GDP and GDI, Lavogna and Miller said.
GDP is by far the most common way to measure the temperature of an economy. Part of the reason for this is because the first GDP estimates for the most recent quarter are released several weeks before the first GDI estimates, Lavogna said. GDP also provides a more detailed breakdown of the components of the economy, such as consumer spending, business investment, and housing construction.
Is there a better indicator than GDP?
But former Federal Reserve economist Jeremy Narewijk said the GDI may be a better barometer. He pointed out that according to 2016 statistics, the initial estimates of GDI are closer to the final estimates of both indicators than the initial GDP figures. paper By the Federal Reserve Bank of St. Louis.
Barclays’ Miller concluded that the GDI is also good at predicting recessions.
One reason the GDI may be more accurate is because it relies on hard data such as unemployment claims to measure wages and salaries, rather than simply surveying companies. Yes, Lavogna says.
LaVogna said the GDI is especially reliable during inflection points, when the economy moves from boom to bust or vice versa. That’s the situation now, he says.
Is the US nearing a recession?
The economy has grown at an average annual rate of 3.2% over the past three quarters, but is expected to grow less than 1% this quarter and less than 1.2% next year, according to a Wolters Kluwer Blue Chip Economic Indicators survey of economists. It is expected that Economists now estimate a 47% chance of a recession over the next 12 months, lower than previously expected but still historically high.
why?
The Federal Reserve’s aggressive interest rate hikes since early last year are finally poised to deliver an even bigger blow to consumer and business spending, with low- and moderate-income households struggling with stimulus checks and being stuck at home. They have significantly depleted their coronavirus-related savings. say many economists.
What is the current state of the job market?
LaVogna said the GDI’s weak numbers are more in line with a job market that has slowed significantly this year and with consumer confidence continuing to be historically low despite a rise in November. . Since the beginning of this year, average monthly employment growth has been revised downward from about 300,000 to 200,000, and the unemployment rate rose to 3.9% from a 50-year low of 3.4%.
But Miller said those jobs numbers remain strong and, while they slowed slightly in October, combined with strong consumer spending data, they are far from signaling a recession.
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On the other hand, it has become difficult to measure corporate profits recently due to rapid fluctuations in prices such as energy costs and turmoil at local banks due to losses on corporate bonds due to high interest rates.
In the current environment, “I support GDP,” Miller says.