Sep 29, 2022 - Economy & Business

New data helps solves U.S. economic growth puzzle

Data: Bureau of Economic Analysis; Note: In 2012 chained dollars; Chart: Axios Visuals
Data: Bureau of Economic Analysis; Note: In 2012 chained dollars; Chart: Axios Visuals

A big economic mystery has been the unprecedented divergence between two growth yardsticks that, historically, have been more aligned.

Driving the news: Revised figures published Thursday bring the measures more in step, and partly solve the mystery. But the result isn't especially reassuring: Depending on your preferred metric, economic growth was weaker than previously thought.

  • The notable revisions were for gross domestic income (GDI). As the name suggests, the measure sums up all of the income in the economy — business profits, interest payments and wages. It initially painted a rosier growth picture.

Why it matters: Lackluster gross domestic product (GDP) didn't seem to square with the gangbusters labor market. That's why some economists were certain GDP would eventually be upwardly revised to better match GDI figures. That outcome hasn't materialized — for now, at least.

What's going on: One driver behind the downward GDI revision was slower labor compensation than initially reported. In other words, worker wage growth wasn't as hot as we thought.

By the numbers: In Q1, inflation-adjusted GDI increased by 0.8%, lower than the initial estimate of 1.8%. The latest estimate of Q2 GDI shows it increased 0.1%, not the 1.4% the government first reported.

  • GDP, which adds up all the spending in the economy, was unchanged for both quarters.

For 2021, the change in GDI was revised down, while GDP was revised up slightly. That brings the gap between the measures to -0.6% last year.

  • That's a much more normal discrepancy than the -2.3% gap previously reported.
  • "There's no question that the record level of subsidies related to the pandemic certainly created challenges for harmonizing the story between GDP and GDI," the Bureau of Economic Analysis' Dave Wasshausen told reporters.
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