Ignore GDP: This Is the Obscure Stat That Explains the Hot Recovery

The recovery is real, even if it's not spectacular, and Gross Domestic Income explains why.
Construction.jpg

Something odd has happened the past few months. The job numbers tell us the recovery is accelerating. The GDP numbers say it's not. This discrepancy has confounded expectations because there's usually a fairly stable relationship between the GDP and employment -- economists call it Okun's Law. The growth-and-jobs gap has since launched a thousand blog posts

But it turns out there might not be a gap, after all. Today we received news that GDI grew at a gangbusters rate in the fourth quarter of 2011. Bye-bye, growth-and-jobs gap.

What the heck is GDI? It's just an alternative measure of the size of the economy. The same way that the unemployment report uses two measures -- one for the official rate and nother for the estimated jobs added -- economic growth relies on both gross domestic product and gross domestic income. Whereas GDP measures the sum of money spent in the economy, GDI measures the total income received in the economy. Since people get money from selling things, there shouldn't be any difference between GDP and GDI. In practice, there are differences. But GDP and GDI generally don't deviate too far from each other. The below chart compares GDP and GDI growth figures on an annual basis since 1999.
AnnualGDI.png
Economists prefer GDP because it's easy to break the data down by sector, but some economists believe that GDI may be the more reliable measure, as David Wessel of the Wall Street Journal pointed out. And that's terrific news, because GDI figures for the fourth quarter of 2011 were just revised up to 4.4 percent, which is a serious, serious recovery speed. GDP figures for the same period stayed flat at 3 percent. 

Here's a closer look at GDP versus GDI numbers since the Great Recession began in December of 2007, this time on a quarterly basis. Remember when economists were freaking out last summer that we were a mini-shock away from a recession? This graph tells you why: GDI nearly kissed zero growth in Q2.

QuarterlyGDI.png
The recent difference between GDP and GDI is the second largest since early 2010, back when unemployment first began to come down. If the latest 4.4 percent GDI growth figure is indeed a better indicator of the economy's growth, then there is little doubt that the recent jobs surge is here to stay.

Even if we keep adding jobs at the pace we have for the past three months, it will still be years until we get back to pre-recession levels of employment. The danger that the long-term unemployed will eventually become unemployable makes this reality all the more pressing. Policymakers at the Fed and Congress should still be trying to push harder for monetary and fiscal stimulus. The recovery is real, but it's not so spectacular that we should stop trying to make it better.


Presented by

Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well. Bestselling author Mark Bittman teaches James Hamblin the recipe that everyone is Googling.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In