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.