There may be an explanation for why the U.S. economy has been remarkably resilient, growing briskly despite high inflation and interest rates.
Maybe it isn’t so resilient after all.
This week, the Commerce Department revised up its estimate of economic growth in the third quarter to an annual rate of 5.2%. That’s the fastest expansion of the nation’s gross domestic product – the value of all goods and services produced in the U.S. — since fall 2021, when the country was still bursting with pent-up demand following the pandemic.
But a far-lesser-known gauge of the economy tells a starkly different story.
Gross domestic income (GDI) rose at an annual rate of just 1.5% in the July-September period and has grown feebly over the past year even while GDP has advanced solidly. Over the past four quarters, GDP has increased 3% while GDI has fallen 0.16%, according to an analysis of Commerce data by Joseph LaVorgna, chief economist of SMBC Nikko Securities.
That’s the biggest disparity between the two measures in recent memory.
The total level of GDI is also 2.5% below that of GDP, the largest gap since 1993, says Barclays economist Jonathan Millar
LaVorgna argues that GDI is doing a better job of picking up the early signals of a recession that many economists believe will hit the U.S. next year.
“I think GDP is overstating the strength of the economy,” LaVorgna says.
The debate over which economic measuring stick is better isn’t just academic. The Federal Reserve may want…
