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.

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