U.S. Economic Growth Remains Robust, No Matter How You Slice It
March 28, 2024 12:24 pm EDT
No matter which data point you look at, the U.S. economy continues to grow at a robust pace.
Like inflation, there are several measures of economic growth, and these differing figures are starting to come into better balance.
On Thursday, data showed the pace of U.S. economic growth proved to be even stronger than previously estimated in the fourth quarter. The Bureau of Economic Analysis said real gross domestic product grew 3.4% in the last three months of 2023, an upward revision from its previous estimate of 3.2%. That was driven by the fact that government spending, particularly at the local and state level, was higher than originally estimated.
Another measure of economic growth paints an even stronger picture for the end of 2023. The BEA on Thursday also released its first look at gross domestic income, or GDI, which calculates the income going to households and businesses from economic activity.
After trailing GDP dramatically throughout 2023, real gross domestic income jumped by 4.8% in the fourth quarter. It was the first quarter that GDI outpaced GDP growth since the third quarter of 2022.
While the gap between the two economic measures narrowed in the fourth quarter, the annual level of GDI growth still trails GDP by a significant margin. Over the course of 2023, real GDP grew by 2.5%. GDI, however, only grew by 0.5%.
Gross domestic output—which is an equally-weighted average of the two and tends to be a leading indicator—grew at a robust 4.1% annualized pace during the fourth quarter, the strongest advance in two years, writes EY Senior Economist Lydia Boussour. The annual average growth of real GDP and real GDI increased 1.5% in 2023, compared with an increase of 2% in 2022.
In theory, GDI should equal gross domestic product, but the Bureau has noted that the GDI contains different source data that yield slightly different results. Yet when comparing the two, even the statistical agency said it considers GDP to be “more reliable” because it’s based on timelier and a more expansive data set.
Much of the recent divergence is because the income side of the National Accounts has a “serious distortion these days,” the reason being that the corporate profits tally includes the Federal Reserve, explains Stephen Stanley, Santander’s chief economist. The Fed is operating at a loss these days, at least on paper. In reality, it prints money to cover its losses. But this means the corporate profit data are being depressed by well over $100 billion every quarter, Stanley says.
“This accounts for a significant portion of the discrepancy between GDP and GDI over the past year or so,” Stanley notes.
Some economists have carefully monitored the GDI’s overall slower pace of growth, fearing it might be another mixed signal that could indicate some kind of underlying economic weakness that the GDP data didn’t pick up.
Yet the measure’s pickup in the fourth quarter likely alleviates some of those concerns. And it’s telling that “both measures increased at a pace well above 3% in the fourth quarter,” writes PNC’s Chief Economist Gus Faucher. He believes that is a strong indication that the U.S. economy did “very well” at the end of 2023.
Write to Megan Leonhardt at megan.leonhardt@barrons.com