Not What I Expected

I was surprised to say the least. I have written it and I have said it in public many times. Conceptually and algebraically, GDP (Gross Domestic Product) and GDI (Gross Domestic Income) must equal out and one acts as a check upon the other. When the two metrics are far apart, the Federla Reserve encourages those discussing economic growth to not rely upon one or the other, but to average the two.

I had told anyone willing to listen that the math did not add up (on that, I was correct), and that GDP from the start of 2023 would have to be revised towards GDI as the two told very different stories. What I did not see coming was an upward revision to both GDP and GDI that would improve the way the past couple of years look inthe US in hindsight. GDP and GDI would end up closer together, which was necessary, but it was the GDI that underwent the larger and surprisingly upward revision. Jaw drop.

For the second quarter, the Bureau of Economic Analysis confirmed GDP growth of 3.0% (q/q, SAAR), while GDI was revised up to growth of 3.4% from the previous revision of just 1.3%, Incredible. This was the result of a sizable boost to the BEA's input for inflation-adjusted disposable income. The savings rate for that quarter was increased from 3.3% to 5.2%. Again, how were early estimates this far off?.

For the first quarter, GDP was revised to q/q, SAAR growth of 1.6%, up from 1.4%, while GDI was revised from growth of 1.4% to growth of 3.0%. I am not done. The full year of 2023 was revised as well. This kind of comprehensive revision is done annually, so the fact that we are going back and "redoing" past math is not a surprise.

What is surprising to me is the direction and size of these revisions as they do not match the anecdotal evidence and periodical data that we have worked off of and traded off of for years now. On that note, for the full year of 2023, GDP growth was revised to 2.9% from 2.5%, while GDI growth was revised from 0.4% to 1.7%. That takes growth for 2023 from 1.45% discussed the Fed's way of averaging the two up to 2.3%. GDP growth for the full year of 2022 was revised as well, from 1.9% to 2.5% as 2022 GDI growth was taken from 2.1% to 2.8%.

It's really is quite amazing. According to the data, the economy has been much stronger than what we were told, and we, or at least I did not trust what we were told at the time. Do we trust the data now? I think, while as economists, we should always check the data. I did know the math was off a rough 18 months before the BEA even acknowledged it.

As a trader, what have I always preached? We trade the environment provided, not the one we want, nor the one that we think should exist. Therefore, the data is the data, and the algorithms that control price discovery do not recognize opinion. They only read and react to data. My friends and relatives all tell me how tough it is out there and have been telling me this since the start of 2023. I do not doubt their sincerity. Someone else out there must be doing better than just fine. That's all.

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Tonyco : What does all this mean for the average person?

Debt Burden Reduction: Faster GDP growth means that the national debt as a percentage of GDP will be lower than expected, potentially reducing future tax burdens.
Increased Business Investment: The revisions show stronger business investment, particularly in factories and equipment, which could lead to more job opportunities and economic growth in the future.

Once again, democratic leadership paves the way forward to recovering from previous republican disaster. I really wish the media and others would stop parroting the narrative that Republicans are better at fiscal policy. 60 years of evidence proves otherwise.

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Tonyco : To add anecdotally, when the media and wall st started crying about inflation is when stuff got tough.

Once the fed cut rates all of a sudden everything is magically green again.

We need to emphasize using our own skulls instead of listening to talking heads on TV. Fortunately, this is primarily a symptom of heavy wealth accumulation in one single generation (Boomers) and once they finally die out and disperse their hoards we can return to sensible economic activities

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NYSE floor trader for over 30 years. Day trader, long-term investor, and anything in between.

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