How’s the Economy Been Doing Over the Past 6 Months?

Studies show that GDI is a better measure of GDP than GDP itself.  In most cases the gap between the two is relatively small.  But over the past 6 months a huge gap has opened up.  (It’s useful to look at 6 month figures as the 2013:1 data are hugely distorted by big 2012 year-end bonuses to beat the Obama–GOP tax increases.)

Over the past 6 months NGDP has grown at an annual rate of 2.19%, whereas NGDI (which measures exactly the same thing!) has grown at a rate of 5.06%.  I suspect the truth is somewhere in between but closer to the 5.06%.  Here’s why:

  • The labor market has been fairly strong over the last 6 months, with job creation accelerating from the middle of last year.
  • All sorts of asset markets (stocks, house prices, bonds, etc) suggest stronger US growth.
  • US consumer confidence has been strengthening.
  • I am not aware of any data confirming an ultra-low 2.19% NGDP growth rate.  At that rate there shouldn’t have been any jobs created over the past 6 months.

BTW, if you look at growth by components (which is not a useful exercise) the huge negative over the last 6 months has been military spending.  Yay!!

PS.  Just to anticipate some comments:  I am not suggesting we focus on NGDI instead of NGDP, NGDI is NGDP.

About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

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