The New GDP Data Is Bad. The Hidden Data Behind It Is Worse

This morning the Bureau of Economic Analysis (BEA) released its latest estimates of GDP. And there’s bad news, hidden in the details. Most analysts are focused on the fact that GDP growth in the first quarter of this year was unrevised, remaining at 1.8%. But they’re focused on the wrong number.

National accounting aficionados know that hidden beneath the headline number is an alternative estimate of GDP. This alternative is often called GDP(I), because it is based on income data, rather than spending data. And GDP(I) is actually a more reliable estimate. Unfortunately, this more accurate indicator tells us that GDP grew by only 1.2%. That’s bad news.

In fact, this alternative indicator says that GDP is still below its level from late 2006.

And the latest survey of macroeconomists by The Wall Street Journal shows little good news on the horizon. GDP is expected to grow by only 3.2% in 2012. While that sounds like a healthy clip, remember that Okun’s Law tells us growth needs to exceed 3% before the unemployment rate will decline.

Rob Dietz

Surely there are better policies for dealing with unemployment than cheering for a higher rate of GDP growth. Why do we so often disregard the consequences of an already overgrown economy? It's time to pay more attention to the work of outstanding economists like Herman Daly, Peter Victor and Tim Jackson.

Joshua Northey


Let us pretend everyone was a little more responsible and bought 20% fewer consumer goods and used that money to pay down debt. To fill the utility gap they could use free museums and city parks or social interactions with family/friends. Everyone would be just as well off if not better, and yet GDP would crater.

Sure businesses would need less labor, but if we actually focused on labor market liquidity (aggressive retraining and placement programs combined with a metered standard working week) we could quickly redistribute the labor and everyone could have more leisure time.

Economists are still in the Phlogiston age where they have some powerful models but are missing the main point. People are SUPER irrational. You cannot just try to maximize the total amount of exchange of goods and services and assume that everything will work itself out because people are rational.


Brian Green

Am I missing something? "GDP is expected to grow by only 3.2% ...... Okun's Law tells us growth needs to exceed 3% ...." Does not 3.2 exceed 3 ???


sure, but not by very much, so very slow reduction in unemployment rates


"... GDP is still below its level from late 2006"
Interesting , as a small business owner, my company's sales are up in 2010 month over year ago month, but still below all time highs from '06. In talking with other business owners they share similar stories. Of course the problem of unemployment is that expenses are at 2010 levels and sales are at 2006 levels therefore, no new hiring.

Joshua Northey

Surely all your costs have not increased? Rent? Commercial rents have cratered in the communities I am familiar with. Debt? Interest rates are still very low.

Improved technology has also helped make things less expensive.

Philip Moore

The barriers to entry for most information-age businesses have been greatly reduced by connectivity and social media. Connectivity allows for lower costs of collaboration and the exploding social media infrastructure has eviscerated traditional media's advertising oligopoly. So why aren't we seeing an exploding GDP? My guess is a generational chasm between those with the skills and understanding of the new digital reality and those with the available capital to exploit the rapidly evolving landscape.