Did the Last Quarter Finally Bring Growth Back?

The Bureau of Economic Analysis released its latest revision to third quarter gross domestic product numbers and the news is … really good. It says that the economy’s nominal output rose 6.2 percent in the third quarter and that 4.8 of those percentage points were real output.

If true, this is three kinds of good news. The first is that nominal output growth of above 5 percent is the kind of “catch-up” demand that the country needs after a prolonged funk. The second kind of good news is that in the context of that kind of rapid nominal growth, the low inflation number (and therefore the high real growth number) is great news that the economy still has lots of running room. Our workers and our capital goods haven’t become useless, there simply hasn’t been enough demand for their output. The third piece of good news is that while the previous revision to this figure was basically just a big bump in inventories, today’s revision was about final demand so it means the growth is sustainable.

The bad news is … I’m not entirely persuaded this data is correct. Real gross domestic income, which longtime national accounting fans will recall is an alternative way of estimating the same quantity that RGDP is supposed to measure, rose by a fairly anemic 1.8 percent.

Given enough time, GDP and GDI estimates usually converge ,which is good because GDP=GDI by definition. And in recent years the convergence has usually taken the form of meeting closer to the GDI number than to the GDP number. So this could all be a kind of statistical mirage. I’d say Barack Obama’s sagging poll numbers are also an indication that the more pessimistic GDI estimate may be the more accurate one. The conventional wisdom says it’s all about the mishaps, but we all remember from Bill Clinton’s second term that robust economic growth leads to a lot of forgiveness. I tend to think that if the economy were really accelerating, we’d see indication of that in a brighter public mood.