Tracking GDI Through The Great Recession

Interesting proposition from Jeremy Nalewaik, covered by the Wall Street Journal, asserts that Gross Domestic Income (GDI) better shows the pain of The Great Recession than Gross Domestic Product (GDP).

Both GDP and GDI are tallied by the Commerce Department.

Gross Domestic Product is an estimate of the output of the national economy.

Gross Domestic Income is an estimate of the income of the national economy.

A look at the graph shows that GDI fell harder and faster during The Great Recession than GDP.

Imagine a pump emptying a reservoir when a drought hits. The volume of water flowing into the reservoir sharply decreases but the volume of water leaving can remain at the same level until the reservoir is emptied. Thereafter, outgo can at most match income.

So with GDI and GDP.

GDP could fall more slowly than GDI, but would eventually catch up. Should GDI recover quickly enough, GDP might bottom out at a higher level and begin rising. Should GDI scrape and bounce along the bottom, GDP will would at last eat mud as well.

As the WSJ article notes, 2009 Q4 GDI is not yet published.

The burning question: has GDI bottomed out and headed up? Or are we still all eating mud? (The graph of GDI for 2009 Q2 and Q3 is not conclusive. It shows definite improvement from Q1, but Q3 is worse than Q2.)

(Hat tip: Rocky Vega at Daily Reckoning.)

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Tags: economic crisis, economic recovery, economy, GDI, Gross Domestic Income, Gross domestic product, United States Department of Commerce, Wall Street Journal

This entry was posted on Saturday, March 20th, 2010 at 5:10 am +0000 GMT and is filed under Business, Current Events. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.