GDI BELIES GDP IMPROVEMENT
We mentioned last week that the statistical discrepancy between the income and spending accounts has never been so wide as is the case today, and we only had gone as far as the third quarter. In that quarter, apparently we had one set of data from the government (the one that actually gets announced and moves the markets) which showed a 2.6% annualized gain in nominal GDP, and yet nominal GDI was down fractionally. Spending in the economy is firming while income is, at best, stagnating — interesting dichotomy.
Well, anecdotally, this gap widened even further in Q4 because based on the Fed Flow of Funds report that statistical discrepancy seems to have ballooned to $386 billion at an annual rate. This is striking and what it means is that, after applying the price deflator, real national income only rose at a 2% annual rate in Q4 — not quite the same as the initially reported 5.9% annualized growth rate in real GDP. What was that Mark Twain said about statistics again?