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Thursday, August 28, 2008

GDP? Forget About It. GDI? Now We're Talking.

Incomes Flashing Clearer U.S. Recession Signal Over Last Year: “The meager gains in earnings over the last year signal the U.S. economy is in much deeper trouble than the growth estimates indicate, economists said.

Gross domestic income, or the money earned by the people, businesses and government agencies whose purchases go into calculating gross domestic product, rose 0.3 percent in the 12 months ended in June after adjusting for inflation, according to Bloomberg calculations based on today's Commerce Department growth report. GDP expanded 2.2 percent.

“The income side of the economy, with profits down for four straight quarters and employment falling, looks like a recession,” said John Ryding, chief economist at RDQ Economics in New York.

Incomes last quarter grew 1.9 percent at an annual rate after adjusting for inflation, a little more than half the 3.3 percent gain posted by GDP, according to Bloomberg calculations. The figures showed incomes dropped in each of the prior two quarters.

The 1.9 percentage-point difference between the GDI and GDP over the last 12 months is the biggest in the post World War II era.

Corporate profits were down 7 percent in the year to June, the biggest drop since the last economic contraction in 2001, according to the Commerce Department. The government also said wages and salaries increased by $52.5 billion in the first three months of the year, $20.2 billion less than previously estimated.”

GDP readings are pretty much useless. See for yourself…

via TheBigPicture
Q1 GDP = 3.3%
Recessions Often Begin With Positive GDP Data

via Econompicdata
“Export Driven” Q1 GDP Revised Up to 3.3%

It all comes down to inflation and ACCOUNTING for inflation… or more specifically, lack thereof. Even the "better than expected" Durable Goods number was nothing of the sort:

Goldman Sachs’ Jan Hatzius: Durable Goods Orders: Don’t Be Fooled by Inflation:

“Durable goods orders beat expectations with a 1.3% month-on-month increase in July. But the apparent strength is due to higher prices, not stronger activity. In fact, deflating orders by the producer price index for durable manufactured goods shows a 9.4% year-on-year drop in real orders, the worst since early 2002.

Even if we adjust for the unfavorable year-on-year comparisons that partly explain this plunge, the recent data look surprisingly similar to those seen in the runup to the 2001 recession.”