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U.S. economic growth revised up; gap between GDP and GDI narrows sharply

Economy Sep 29, 2022 08:47AM ET
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© Reuters. People walk down a street lined with outdoor seating for restaurants in the Little Italy neighborhood of Manhattan, in New York City, New York, U.S., July 18, 2021. REUTERS/Jeenah Moon

By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. economy's recovery from the COVID-19 pandemic was much stronger than initially thought amid massive fiscal stimulus, according to revisions on Thursday, which also showed the gap between the two measures of growth narrowing sharply in 2021.

Gross domestic product increased 5.9% in 2021, the Commerce Department said in its annual revision of GDP data. That was revised up from the previously reported 5.7% growth.

The economy contracted 2.8% in 2020, revised up from the previously published 3.4% decline.

"The pandemic recession from the fourth quarter of 2019 through the second quarter of 2020 was a bit less sharp than what is currently published," said Erich Strassner, associate director of National Economic Accounts at the Commerce Department's Bureau of Economic Analysis (BEA). "The recovery from the second quarter of 2020 has been a bit stronger."

The upward revisions to GDP in both years largely reflected more consumer spending, exports and federal government spending than previously reported.

Spending was boosted by government subsidies to households and businesses as part of a nearly $6 trillion in relief since the pandemic started in the spring of 2020.

GDP, the standard economic growth measure, is the value of goods and services produced in the United States. Economic activity in the nation is also assessed from incomes earned and the costs incurred in the production of GDP, expressed as Gross Domestic Income (GDI).

Revisions showed GDI rebounding 5.5% in 2021, revised down from the previously published 7.3%. GDI contracted 2.3% in 2020 instead of 2.9% as initially estimated. The downward revision in 2021 reflected revisions to several components, including net interest income, private industry wages and salaries, proprietors income as well as corporate profits.

In principle, GDP and GDI should be equal, but in practice differ as they are estimated using different and largely independent source data.

The gap between GDI and GDP, also known as the statistical discrepancy, is the sum of measurement errors in estimating the respective components of GDP and GDI. The statistical discrepancy widened sharply prior to the revision, attracting the attention of Federal Reserve officials and economists.

SUBSIDIES A CHALLENGE

With GDP revised higher and GDI lower, the statistical discrepancy narrowed to -0.6% of GDP in 2021. That was revised from the previously reported -2.3% and brought the statistical discrepancy in line with historical norms.

The gap was at -1.0% of GDP in 2020. Last year's initially reported unusually large statistical discrepancy in part reflected challenges handling the massive subsidies in the national accounts. According to the BEA, the blowout in the GDP/GDI gap had not led to changes in the methodology and there would be no changes in procedures going forward.

"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," Dave Wasshausen, chief of the Expenditure and Income Division at the BEA told reporters.

"All the COVID-related special effects tables have been posted. We've updated all of those tables and all along the goal has been to strive for transparency so people understand exactly how we're interpreting those programs and how to book them on the gross domestic income side of the accounts as subsidies or grants or what have you."

Subsidies were revised down to $478.8 billion in 2021 from the previously reported $490.0 billion. Tax credits to fund paid sick leave and employee retention accounted for the bulk of the revision. The initial projections for subsidies were drawn from Congressional Budget Office and Treasury Department reports.

The revisions were based on actual claims information from the Treasury Department's Office of Tax Analysis.

Overall, the GDP revisions to data from the fourth quarter of 2016 through the fourth quarter of 2021 did not change the economic picture. But the short pandemic recession was slightly less steep than previously reported.

The economy contracted 18.2% from its peak in the fourth quarter of 2019 through the second quarter of 2020, instead of 19.2% as previously reported. It was still the worst recession on record. The recovery from the second quarter of 2020 was a bit stronger than previously estimated, with the economy growing at an average annual rate of 9.8% through the fourth quarter of 2021, an upward revision of 0.2 percentage points.

U.S. economic growth revised up; gap between GDP and GDI narrows sharply
 

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Comments (8)
lakes Tenn
lakes Tenn Sep 29, 2022 9:50AM ET
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well done Brandon
Ricardo Diogo
Rcd72 Sep 29, 2022 9:39AM ET
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$6 trillion!!!! this is SOLE reason for the inflation, it was the FED works and responsibility (not the chips, the harbour, supply chain and the rest of the blabla,) that
Brad Albright
Brad Albright Sep 29, 2022 9:39AM ET
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Oh, thanks for your superior assessment.
Saeed Farahbod
Saeed Farahbod Sep 29, 2022 9:32AM ET
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What about this year GDP analisis this article left out real beef intentionally shame to politcize economy too
lakes Tenn
lakes Tenn Sep 29, 2022 9:19AM ET
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we are producing less and cant afford to buy things, so imports are down, and this is being spun as all good? can we get just a couple of these media outlets not bought and paid for by the libs
Tre Hsi
Tre Hsi Sep 29, 2022 9:19AM ET
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I thought President Orange was supposed to grow the US economy and reduced trade deficits?  so you are telling us that didn't happen?  say it aint so!
Stephen Fa
Stephen Fa Sep 29, 2022 9:19AM ET
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When inflation is at 8%, most everything in $USD "grows" with it.
Stephen Fa
Stephen Fa Sep 29, 2022 9:19AM ET
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Tre Hsi TDS is so real.
lakes Tenn
lakes Tenn Sep 29, 2022 9:19AM ET
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tre orange man did grow the economy. this is Bidens doing. when trump left, economy was rebounding, except in the blue states that refused to open, inflation was low, had positive wage growth and a booming stock market. The Democrats took over and this is what the results are.
Tony Hall
Tony Hall Sep 29, 2022 9:10AM ET
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And now for the real headline news, GDP price index for Q2 revised higher to 9.1%. The federal reserves favorite baromiter PCE price index revised higher along with the core index. All of this sent yields higher and bonds and stock futures lower, and the dollar back in its upward projectory. Should be another wonderful day on Wall Street.
Alpha Omega
Alpha Omega Sep 29, 2022 9:03AM ET
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U had to write 500 words and U did it...... NothingBothersU About Current conditions.
Brad Albright
Brad Albright Sep 29, 2022 9:03AM ET
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Nothing about the New York mets either!
Tre Hsi
Tre Hsi Sep 29, 2022 9:03AM ET
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Brad Albright  Nothing about the NY JETS, which is just as well.....
Ferdinando Riboni
Ferdinando Riboni Sep 29, 2022 8:53AM ET
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the Elite got Richer
dar dar
dar dar Sep 29, 2022 8:53AM ET
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much much richer
Manson Kenny
Manson Kenny Sep 29, 2022 8:52AM ET
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If you are interested in stocks, spot gold and cryptocurrencies, chat with me and discuss with me!
Brad Albright
Brad Albright Sep 29, 2022 8:52AM ET
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Hey, Manson. When did you get out of jail?
Cody Hawkins
Cody Hawkins Sep 29, 2022 8:52AM ET
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Brad Albright He's probably still out on parole.
 
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