The US economy may not be booming, but it certainly isn’t doing as badly as suggested by the 0.7% (saar) drop in real GDP during Q1. By now, everyone is aware of the “residual seasonality” problem that has been weighing on Q1 growth rates. That includes the Bureau of Economic Analysis, which announced in a 5/22 blog post that it should fix the problem by the end of July.
Recently, I’ve noted that the problem can be overcome by simply calculating that real GDP rose 2.7% during Q1 on a y/y basis. This automatically eliminates the seasonal adjustment problem and shows that the economy continues to grow at a slow but steady pace. Real nonfarm business output, which excludes government spending, rose 3.5% y/y during Q1.
Furthermore, national income rose faster than GDP during Q1. In theory, these two should be identical. In practice, there is a statistical discrepancy, which rose to a record high of $328 billion (saar) during Q1. In other words, the economy looks better when the BEA adds up all the incomes than when it adds up all the demand data that are used to calculate national output.
Today's Morning Briefing: Neither Boom Nor Bust. (1) Jury is out. (2) Supply-side and demand-side perspectives on slowdown. (3) National and regional business surveys diverged in May. (4) Not much spring in consumer spending. (5) Meet the HENRYs, or high earners not rich yet. (6) Rising rents and health care costs squeezing consumers. (7) Meet the BBADs, or older Baby Boomers with adult dependents. (8) Building lots of new factories, or just a Gigafactory? (9) Record discrepancy between GDP and National Income. (10) Bond market’s latest economic assessment. (11) Lots of mixed PMIs in Asia and Europe.
