Is the Economy Starting to Turn South?

September 7, 2023


Four letters that are, ridiculously, in charge of the US economy.

They stand for the National Bureau of Economic Research. It’s the board of economic geeks that officially determine whether the economy has fallen into a recession. Pay no attention to that myth of two consecutive quarters of negative growth.

The NBER is large and in charge.

They’re the ones with the academic expertise to ferret out all the salient nuances that show up in economic reports so as to be able to truly discern the real state of the economy. Or something like that…

The thing is government agencies calculate these numbers. And people expect them to accurately reflect what they’re supposed to measure. 

So if you can’t trust GDP, which is a calculation that’s supposed to accurately reflect the health of the economy (and I’m not going all tin foil beanie here), what can you trust?

How about GDP’s twin sister… GDI.

Gross Domestic Income

GDP is supposedly the sum total of all the money being paid in the economy — an indication of how much “value” was produced by counting up how much money was spent. So if payments are being recorded somewhere, shouldn’t a record of income be on the other side of that?

Of course. 

And that’s what GDI is supposed to measure. The calculation is a little different from GDP. But you don’t need a PhD in economics to understand that if we produced and sold goods worth X – the receiving end of X should also be measurable. (At least to some reasonable degree.) 

So if GDP is expanding, then GDI should be rising with it. Make sense?

Of course it does. It’s GDPs flip-side!

Except when it doesn’t.

We don’t hear a lot about GDI. I’m not sure why. My guess is because 1) GDP is so well known and 2) it generally just shows the same thing. So why muddy the waters with more economic letters?

But the problem comes when they don’t show the same thing. 

Take a look at the chart below. It’s from the years just before the “great financial crisis” in 2008. It shows a year-over-year percentage change in the two measures. GDP is in blue and GDI is in red.

Source: The Federal Reserve Bank of St. Louis

Again, no PhD required but you can see that while there are some variances, both GDP and GDI are on the same side of the scale. But see what happens in the third quarter of 2007. And the fourth quarter. And Q1 2008…

That kind of divergence signals trouble. You know what came of that. 

Now let’s hit the fast forward button and look at the most recent six quarters.

Source: The Federal Reserve Bank of St. Louis

You have to conclude that’s problematic — again no PhD required.

The Reports Nobody’s Reporting

So, what’s the real state of the US economy? The NBER has been mum on any recession. 

Is everything booming like the president would have you believe? (<whispering> Bidenomics is working…)

Or is something seriously out of whack?

If you’ve been hearing the good news in the media while simultaneously feeling a squeeze on your budget and investments…  Well, I’ll leave that for you to decide.

Humbly yours,

Tim Collins
Editor, Streetlight Daily