Friday, March 25, 2011

Real Gross Domestic Income still below pre-recession peak

by Calculated Risk on 3/25/2011 12:25:00 PM

According to the Bureau of Economic Analysis (BEA), real GDP is now slightly above the pre-recession peak. Real GDP (in 2005 dollars) was at $13,380.7 billion in Q4, just 0.13% above the $13,363.5 billion in Q4 2007.

However real Gross Domestic Income (GDI) is still 0.25% below the pre-recession peak. For a discussion on GDI, see from Fed economist Jeremy Nalewaik, “Income and Product Side Estimates of US Output Growth,” Brookings Papers on Economic Activity. An excerpt:

The U.S. produces two conceptually identical official measures of its economic output, currently called Gross Domestic Product (GDP) and Gross Domestic Income (GDI). These two measures have shown markedly different business cycle fluctuations over the past twenty five years, with GDI showing a more-pronounced cycle than GDP. ...

In discussing the information content of these two sets of estimates, the confusion often starts with the nomenclature. GDP can mean either the true output variable of interest, or an estimate of that output variable based on the expenditure approach. Since these are two very different things, using “GDP” for both is confusing. Furthermore, since GDI has a different name than GDP, it may not be initially clear that GDI measures the same concept as GDP, using the equally valid income approach.
Note: The following graph is constructed as a percent of the peak for both GDP/GDI. This shows when GDP/GDI has bottomed - and when GDP/GDI has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%.

GDP Percent Previous Peak Click on graph for larger image in graph gallery.

This graph is for real GDP (blue) and real GDI (red) through Q4 2010. This shows real GDP is back to the pre-recession peak. However real Gross Domestic Income (GDI) is still slightly below the pre-recession peak as of Q4 2010. So it now appears that the U.S. economy will reach the pre-recession peak in Q1 2011.

Of course other measures of the economy - especially payroll employment - are still far below the pre-recession peak.