May 18, 2024

U.S. Economy Weaker Than Thought in Year’s First Half, by One Measure

Taken together, the two measures suggest economic growth was at best anemic in the first half of the year. At worst, the economy had been shrinking for two consecutive quarters, a common, though unofficial, definition of a recession. An average of the two measures, which some economists consider more reliable than either individual figure, shows that output shrank slightly in the first half of the year.

The conflicting signals sent by the two measures of output in recent quarters had been something of an economic mystery because, in theory, the two indicators should be identical. G.D.P. measures the value of all the goods and services produced and sold in the country; the lesser-known gross domestic income measures all the money earned by individuals, businesses and other organizations. Because one person’s spending is someone else’s income, the two figures should add up to the same amount.

In practice, the two measures rarely align perfectly because they are derived from different data sources. Recently, however, they diverged sharply, which government statisticians attributed in part to the big shifts in economic activity caused by the pandemic, as well as difficulty accounting for the huge aid programs enacted to combat it. Before the latest revisions, government data showed gross domestic income as $773 billion larger than gross domestic product in the second quarter of this year, a gap of nearly 4 percent.

The updated data released Thursday helped narrow the gap to 1.3 percent. Gross domestic income was revised downward both last year and this year, mostly because workers’ earnings grew less than previously believed. Gross domestic product was revised upward in 2020 and 2021, mostly because of stronger consumer spending, especially on services, as well as increased exports.

Those upward revisions to G.D.P. years mean that the recovery, taken as a whole, looks stronger than earlier figures suggested. They indicate that G.D.P. returned to its prepandemic growth path at the end of last year, a remarkably rapid recovery from the deep pandemic recession.

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