There are two ways to measure the economy and they should lead to the same answer over time. Instead, we have the largest gap in history.

GDP and GDI data from the BEA, chart by Mish
 

GDP vs GDI

• Gross Domestic Product (GDP) and Gross Domestic Income (GDI) are different measures of a nation's economic activity. 
• GDI counts what all participants in the economy make (wages, profits, and taxes). 
• GDP counts the value of what the economy produces (goods, services, and technology).
• Real Final Sales (RFS) is a subsect of GDP that ignores changes in inventory which net to zero over time. Economists generally consider RFS to be the true bottom-line measure of the economy.

There are usually slight differences between GDP and GDI but the fluctuations are normally random. 

Since the second quarter of 2021 GDI has been on a tear. The gap is really widening, especially compared to RFS. 
 

Which to Believe?

On August 19, I repeated my message from earlier this year: Expect a Long Period of Weak Growth, Whether or Not It's Labeled Recessionhttps://t.co/w3m0qObhIx

— Mike "Mish" Shedlock (@MishGEA) August 30, 2022

Those who think we are not in recession place a lot of faith in GDI. But what is so believable about GDI?

The debate goes like this. 

Recession Believers: Housing is crashing, real wages are declining, and real spending is at best stagnant. The yield curve is screaming recession. Target has warned three time, Walmart once, and the Fed is on a rate hike rampage. 

Recession Disbelievers: Jobs are strong and so is GDI. 

This one is not even close, but people will believe what they want. Jobs are a lagging indicator, and due to massive losses in the Covid recession, I fully expected a minimal rise in unemployment this recession. 

Still, I had no good explanation for the GDP vs GDI discrepancy, until now.

Massive downward revisions to employment and incomes would help narrow the statistical discrepancy between GDP and GDI (in part by raising productivity) but I have no strong view on whether we should expect that

— Matthew C. Klein (@M_C_Klein) August 22, 2022

Expect Big BEA Revisions

"I inquired and a BEA economist said (a) it’s probably mostly due to janky 2021/22 QCEW seas adj. caused by Covid weirdness; and (2) strongly hinted Sept will see big annual revision."

QCEW stands for Quarterly Census of Employment and Wages.
 

Index of Wages BLS vs BEA 

BEA data is quarterly and BLS data is monthly. In the above chart, the BLS Index of Wages is a quarterly average. 

Everything now fits together nicely. Even the alleged strength in jobs is not what it seems.
 

Increasingly Likely That Alleged Job Strength is a Mirage of Part-Time Second Jobs

Last Friday I commented Increasingly Likely That Alleged Job Strength is a Mirage of Part-Time Second Jobs

Since March, the BLS reports that the sum of full and part-time employment is down by 48,000. 

Meanwhile, the BLS also reports Jobs have increased by 1.9 million. 

A likely explanation for the divergences is boomer retirements coupled with approximately 2 million people taking extra part-time jobs to make ends meet due to high inflation.

But no matter what the explanation, all the pieces point to a GDI that's not happening. 

It's amazing that people think this economy is doing well when it's obvious that it isn't. 
 

Last Five Quarters of Real Final Sales

• 19,449
• 19,453
• 19,524
• 19,469
• 19,516

That's an entire year of stagnation. I believe a recession started in May as that's when retail sales and housing both cracked.

But the whole recession debate is now silly. 
 

Expect a Long Period of Weak Growth, Whether or Not It's Labeled Recession

On August 19, I commented Expect a Long Period of Weak Growth, Whether or Not It's Labeled Recession

On August 26, at Jackson Hole, Fed Chair Jerome Powell Pledges to "Act With Resolve" to Beat Inflation

Key comments: "Reducing inflation is likely to require a sustained period of below-trend growth."

We have already had a year of very weak Real Final Sales growth (assuming there was any growth at all). Expect more weakness. 

Meanwhile, please note The Fed is Openly Cheering the Stock Market Plunge Following Jackson Hole.

Good luck with that. 

For discussion, please see If Unemployment Levels Remain Low, How Far Can the Stock Market Decline?

More By This Author: