NGDP (probably) up around 4% in 2012 Q4

The government measures GDP in two different ways; GDP and GDI.  The Gross Domestic Income measure is generally regarded as the most accurate, but unfortunately the complete data comes out one month after the flash estimate of GDP.  Hence the press tends to report the GDP numbers.

Fortunately, the BEA does report most of the GDI data at the same time as GDP.  Today’s report shows the reported part of NGDI rising from $13,430.2 bill in Q3 to $13,569.5 billion in Q4.  About 4.1% at an annual rate.  The same 4% track we’ve been stuck in since mid-2009.  When the missing data is reported (interest and corporate earnings) the number will be revised, but is still likely to be much higher than the 0.5% reported growth in NGDP during Q4.  That number made no sense in light of the steady job growth in Q3 and Q4.


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27 Responses to “NGDP (probably) up around 4% in 2012 Q4”

  1. Gravatar of Morgan Warstler Morgan Warstler
    30. January 2013 at 13:03

    I want to put out an idea and get thoughts.

    I think MM has come far enough, that it should only champion more QE if it comes under a NGDPLT.

    Meaning, everybody knows about MM.

    MM is in some danger of being lost in the din of “see QE doesn’t work”

    And it would be a big line in sand, that essentially says there is a difference between QE for any reason, done any way vs. the Fed making real commitments to the LT part if not the NGDP part.

    I’m just asking here.

    If your answer is NO QE IS STILL GOOD, then my question is, is there a future situation where this would make sense, and how far off would it be?

  2. Gravatar of W. Peden W. Peden
    30. January 2013 at 13:10

    It’s interesting that both the UK and US economies should be contracting at a time of decent job growth. However, in the UK, I think this has been a more persistent phenomenon: unemployment at the aggregate level hasn’t been that bad at all during the recession GIVEN the fall in real output.

  3. Gravatar of Laurent Laurent
    30. January 2013 at 13:26

    We are presented this data:

    1) NGDP growth 0.5%

    2) Inflation (CPI 1.2%, GDP deflator 0.6 %)

    3) RGDP growth (NGDP growth – deflator) -0.1%

    4) NGDP estimated from incomplete NGDI data ~ 4 %

    One of these facts must be wrong. Has inflation been at 4.5%? Or has Q4 RGDP growth been at 3% ? What happened?

  4. Gravatar of marcus nunes marcus nunes
    30. January 2013 at 13:29

    “Probably”, “maybe”. It´s all possible given the data collection difficulties and delays. But that´s mostly true for every quarter. And the picture is not good:
    http://thefaintofheart.wordpress.com/2013/01/30/with-the-gdp-release-theres-always-a-contribution-story-to-tell/
    Note: Brazil has had no growth (almost none) for the past two years and unemployment is at a record low!

  5. Gravatar of W. Peden W. Peden
    30. January 2013 at 14:14

    Laurent,

    Probably all of them are strictly incorrect. The only question is: which one is most out?

    Insofar as inflation variability in economies like the US right now is not very great, one would expect that it’s the NGDP figures that are wrong.

  6. Gravatar of ssumner ssumner
    30. January 2013 at 14:48

    Morgan, QE has always been better than not QE, and it’s always been far worse than NGDPLT.

    W. Peden, Yes, the British case is interesting, but the US case is probably just bad data.

    Laurent, NGDP is probably wrong, No one thinks military spending fell at a 22% rate in Q4. It was probably about flat.

  7. Gravatar of flow5 flow5
    30. January 2013 at 15:23

    That was the “advance estimate”. Don’t know how they compile the data (I assume it’s based on incomplete info – the latest data being the last to be included). If my assumption is true, then the second estimate should be higher – & the final estimate revised up yet again.

    The roc in MVt (the proxy for real-output), peaked in Sept, then proceeded to fall in Oct & Nov. But it climbed back above the Sept figure during Dec.

    The bigger news is the composition of n-gDp reflects stagflation (business stagnation accompanied by inflation).

  8. Gravatar of Cthorm Cthorm
    30. January 2013 at 15:52

    @Morgan

    I don’t you can say that MM has come far enough when you still see editorials like in today’s Financial Times.

    Then again I don’t expect the entire financial press, or traders for that matter, to ever really ‘get’ MM. Its not intuitive or common sense. I think it’s very difficult to grasp MM (and monetary policy in general) unless you have a very strong understanding of systems.

  9. Gravatar of John Papola John Papola
    30. January 2013 at 17:23

    The world would be a better place if GDP was ignored and GDI was used. Then, this absurd “consumption drives the economy” fallacy would turn into “working drives the economy” since 70% of GDI is “income from domestic business” rather than “consumer expenditures”.

    While researching my attack on this fallacy, I found GDI much more useful.

    http://www.forbes.com/sites/beltway/2013/01/30/think-consumption-is-the-engine-of-our-economy-think-again/

  10. Gravatar of Doug M Doug M
    30. January 2013 at 17:24

    The disconnects in the GDP numbers.

    The GDP numbers suggest that Consumer spending is growing in the mid 3% range. Fixed investment spending is strong — low double digit growth. Inventroy accumulation was negative — which brings down the “production” numbers, but suggests that demand was stronger than forecast. So, the private economy is doing reasonably well.

    Government spending — particularly defense spending was the big negative that brings growth back to zero.

    Also keep in mind that this is the “advance” number. Much of the December data has been estimated. GDP numbers fluctuate wildly between the first and second release.

  11. Gravatar of Doug M Doug M
    30. January 2013 at 17:24

    The disconnects in the GDP numbers.

    The GDP numbers suggest that Consumer spending is growing in the mid 3% range. Fixed investment spending is strong — low double digit growth. Inventroy accumulation was negative — which brings down the “production” numbers, but suggests that demand was stronger than forecast. So, the private economy is doing reasonably well.

    Government spending — particularly defense spending was the big negative that brings growth back to zero.

    Also keep in mind that this is the “advance” number. Much of the December data has been estimated. GDP numbers fluctuate wildly between the first and second release.

  12. Gravatar of Doug M Doug M
    30. January 2013 at 17:24

    The disconnects in the GDP numbers.

    The GDP numbers suggest that Consumer spending is growing in the mid 3% range. Fixed investment spending is strong — low double digit growth. Inventroy accumulation was negative — which brings down the “production” numbers, but suggests that demand was stronger than forecast. So, the private economy is doing reasonably well.

    Government spending — particularly defense spending was the big negative that brings growth back to zero.

    Also keep in mind that this is the “advance” number. Much of the December data has been estimated. GDP numbers fluctuate wildly between the first and second release.

  13. Gravatar of Doug M Doug M
    30. January 2013 at 17:26

    sorry for the tripple post, not sure how that happens.

  14. Gravatar of Saturos Saturos
    31. January 2013 at 01:25

    So it seems like QE3 didn’t help at all… that’s strange, since the stock market reacted at the time. And the fiscal cliff was largely averted. Can Scott explain this?

  15. Gravatar of Scott Sumner Scott Sumner
    31. January 2013 at 06:05

    Saturos, Back in September I predicted that QE3 would have a very small positive effect—based on market reaction to the announcemment. I also said that we’ll never learn anymore about the effect of QE3 than we already new 5 minutes after the announcement. The effect is so small it gets lost in the random noise of data. My commenters got much more enthusiastic about QE3, but I told them not to get their hopes uop.

    I expected it would roughly offset the fiscal contraction, indeed that it was done for exactly that purpose (zero fiscal multiplier) Now the consensus view of private economists is that 2013 growth will roughly equal to 2012 growth. That seems to support the notion of a zero fiscal multiplier.

  16. Gravatar of NGDP & NGDI: Two sides of the ledger and playing “catch-up” | Historinhas NGDP & NGDI: Two sides of the ledger and playing “catch-up” | Historinhas
    31. January 2013 at 06:37

    [...] period of higher NGDI growth to “catch-up”. Lately, NGDP has been above (grown more) than NGDI. Scott has said that preliminary numbers from the BEA indicate that NGDI has grown close to 4% in Q4 2012. [...]

  17. Gravatar of flow5 flow5
    31. January 2013 at 07:17

    “The farther from a final good a business’s output is, the more it relies on credit markets and the more it is subject to distortions on the savings and investment side”

    Even real GDP per capita would be an improvement.

  18. Gravatar of flow5 flow5
    31. January 2013 at 09:56

    The Chicago Purchasing Managers reported the Chicago Business Barometer accelerated 5.6 to 55.6, its highest level since April 2012
    ——

    In the commercial loan theory of banking (pre-1914 banking theory) lending (CB credit) was confined to short-term, self-liquidating agricultural, industrial, or commercial paper originating out of the financing of “goods-in-process”.

    Reserve bank credit (discounts & advances) then consisted of (1) re-discounting previously discounted paper by the borrowing banks (endorsing its customer’s paper), & by (2) direct advances through the purchase of the banks’ own promises to pay (secured by the banks’ own collateral – in 1932 the Glass-Steagall Act made gov’t securities eligible paper).

    The Central bank/FRBNY (coordinating purchases & sales for the 12 District banks c. 1933) “accepts a broad range of assets as discount window collateral”:

    See: Federal Reserve Collateral Guidelines
    http://bit.ly/XobhHg

    The Fed’s unofficial mandate [supporting the depth & liquidity of the government securities market], is paramount to its regulatory directive [providing liquidity to the individual CBs].

    A Central bank directly controls the availability, & indirectly, the cost of credit, but doesn’t have the authority to legislate the allocation & distribution of credit (to the primary dealer’s delight).

    Force feeding can only be managed through Congressional approval (e.g., Obama stimulus checks)

  19. Gravatar of flow5 flow5
    31. January 2013 at 18:38

    With nothing else for the (PDs) to buy – the blow-off in stocks is accelerating & the flash-crash post-poned.

    SEE: “wealth effect channel” – where consumer spending changes as wealth (asset values) change

    See:
    http://bit.ly/10tn3Az

    The Equity Price Channel

    “Mishkin emphasizes two equity price channels: Tobin’s Q and wealth effects. Tobin’s Q is a widely used theory of investment, which states that:

    Q = Market Value of Capital / Replacement Cost of Capital

    This is, of course, a misnomer, it should be reclassified as the poverty effect (wealth transfer).
    ———–

    The roc in MVt (proxy for real-output) is countercyclical for the first portion of this year. Potentially you can still make money being short bonds – up until April month-end.

    Even given a boost from Vt, I wouldn’t short the downside seasonal move in May. The question is: what impact will countervailing intervention have? & how long will it last?

    I expect the Fed to take away the punch bowl after Congress deals with the deficit. At that point the markets will follow the current numbers.

    2012-09 ,,,,,,, 0.025
    2012-10 ,,,,,,, 0.014
    2012-11 ,,,,,,, 0.02
    2012-12 ,,,,,,, 0.029
    2013-01 ,,,,,,, 0.027
    2013-02 ,,,,,,, 0.026
    2013-03 ,,,,,,, 0.033 [exit early]
    2013-04 ,,,,,,, 0.027 buy
    2013-05 ,,,,,,, 0.019
    2013-06 ,,,,,,, 0.012
    2013-07 ,,,,,,, 0.014
    2013-08 ,,,,,,, 0.007
    2013-09 ,,,,,,, 0.005

    Juncture recognition is somewhat complicated because inflation expectations have inflection points. I.e., at some point an easy money policy results not in lower rates, but in higher rates (& vice versa).
    ———-

    Given that the roc in MVt [the proxy for inflation] falls dramatically in the last half of 2013, plus the seasonal patterns early in a year, I’d be looking for this trend to reverse, & a place to take profits:

    2012-09 ,,,,,,, 0.126
    2012-10 ,,,,,,, 0.12
    2012-11 ,,,,,,, 0.11
    2012-12 ,,,,,,, 0.1
    2013-01 ,,,,,,, 0.108
    2013-02 ,,,,,,, 0.114 [exit bonds]
    2013-03 ,,,,,,, 0.1
    2013-04 ,,,,,,, 0.096
    2013-05 ,,,,,,, 0.098
    2013-06 ,,,,,,, 0.092 & buy ?
    2013-07 ,,,,,,, 0.076
    2013-08 ,,,,,,, 0.048
    2013-09 ,,,,,,, 0.046
    2013-10 ,,,,,,, 0.044

  20. Gravatar of Bill Woolsey Bill Woolsey
    1. February 2013 at 06:52

    If we start thinking about GDI, we should expect profit (income of the residual claimants) to be volatile.

    Labor compensation is going to be driven by expected future nominal income. (Not this quarters nominal income.) Interest too.

    It will be profit that will fluctuate with nominal output.

    So, I would predict that when the profit figures are added to GDI, they will bring down the rest so that it is pretty much consistent with nominal GDP.

    Let’s say, profits that defense companies attribute to the 4th quarter will be extra low.

    And, of course, we will see as the data changes.

  21. Gravatar of Saturos Saturos
    1. February 2013 at 07:20

    As Justin Wolfers points out on Twitter, we should give more credence to the BLS’ report of steady job growth for Q4.

  22. Gravatar of flow5 flow5
    1. February 2013 at 20:24

    On 12/16/2012 I said {about stocks}:

    “r-gDp is likely to accelerate earlier & faster than anyone expects…Jan-Apr could be a zinger”

  23. Gravatar of ssumner ssumner
    2. February 2013 at 08:45

    Bill, You said;

    “So, I would predict that when the profit figures are added to GDI, they will bring down the rest so that it is pretty much consistent with nominal GDP.”

    I strongly disagree—let’s see what the numbers look like next month.

  24. Gravatar of dtoh dtoh
    2. February 2013 at 13:09

    Scott, You said:

    “Morgan, QE has always been better than not QE, and it’s always been far worse than NGDPLT.”

    I think the challenge is not convincing opinion leaders of the former but rather of the latter. Enough people already understand the former, and you dilute your message on NGDPLT by discussing the general merits of QE. I agree with Morgan that it would be much more effective (in terms of actually achieving better monetary policy) to focus exclusively on the need for NGDPLT. You need only to convince a few more people and the rest of the dominoes will fall. I also think it would be helpful to adjust your model to focus on the triggering mechanism of real financial assets prices (see my point to Cthorm).

    Cthorm, You said:
    Then again I don’t expect the entire financial press, or traders for that matter, to ever really ‘get’ MM. Its not intuitive or common sense. I think it’s very difficult to grasp MM (and monetary policy in general) unless you have a very strong understanding of systems.

    I think that’s only true if you model monetary policy using traditional models (HPE, higher quantity implies higher prices, etc). If you use a model based on the real prices of financial assets affecting the marginal exchange of financial assets for real goods and services (as I have described elsewhere), then it is easy to understand. Functionally it produces all of the same results as the model Scott uses, it’s more intuitive, and it more accurately describes actual economic behaviour.

  25. Gravatar of ssumner ssumner
    3. February 2013 at 10:45

    dtoh, I don’t see how a blog like mine can “not discuss” QE. People expect me to haver an opinion.

  26. Gravatar of dtoh dtoh
    3. February 2013 at 11:00

    Scott, You said:

    “I don’t see how a blog like mine can “not discuss” QE. People expect me to haver an opinion”

    Don’t disagree. I just think it’s important that you continually and strongly emphasize the serious deficiencies of any policy that lacks a level target and why NGDP is the best variable to target.

  27. Gravatar of David David
    5. February 2013 at 16:22

    Late to the discussion and no response necessary, but after looking at recent NGDP and GDI values and growth rates, I wonder if the Q4 growth weakness may simply be a case of Q3 reporting higher than it really was. Many other measures show the last two thirds of 2012 as weak, and a 5.9% Q3 print seems especially wrong now. I may be reaching, but it would make the whole picture a lot more sensible.

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