A comment on Q3 NGDP

The initial NGDP numbers show a 5% growth rate, a bit better than expected.  But as I discussed in this post, the initial estimates of NGDI are actually better predictors of actual NGDP than the initial NGDP figures themselves.  Only three of the four categories for NGDI are currently available, comprising about 75% of total income.  But unless I’m mistaken, this link suggests that the bulk of NGDI rose at only a 2% annual rate in Q3, down sharply from the more than 5% rate in Q1, when the unemployment rate was falling fast.  So we need to be careful before assuming this NGDP figure represents a trend.



21 Responses to “A comment on Q3 NGDP”

  1. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    27. October 2011 at 10:17

    Not too far off topic, Tim Cavanaugh;


    ‘This international neglect turned out to be Iceland’s saving grace. The crisis ended almost as quickly as it had begun. The Organization for Economic Co-operation and Development expects Iceland’s economy to grow by 2 percent this year and next. That’s not enough to replace the post-2007 loss, but it’s more than enough to return to the pre-boom trend line, and it’s much stronger than the performance of Portugal, Italy, Ireland, Greece, and Spain, affectionately know as the PIIGS economies. Iceland’s long-term interest rate, a not-inconsiderable 8 percent, compares well with a rate of over 13 percent for Greece, which is astounding when you consider that Iceland endured a default that Greece, in name at least, has so far avoided. The difference in unemployment””5.8 percent for Iceland against 16 percent for Greece””is even more striking. Iceland expects to have a balanced budget in 2013.’

  2. Gravatar of John hall John hall
    27. October 2011 at 10:44

    I got the same numbers from Table 1.10. I was trying to make an argument about the remainder being correlated with investment spending which rose like 16% (and the remainder rose 10%, you’d see the overall at like 4%), but I’m not sure how correlated those two actually are.

  3. Gravatar of John M. Becker John M. Becker
    27. October 2011 at 10:47

    The difference between NGDP and NGDI as well as the difference between revisions and final stats shows you just how sloppy economic data is.

  4. Gravatar of ssumner ssumner
    27. October 2011 at 13:36

    Patrick, Yes, Iceland made the right choice not to bail out the banks, and Ireland made the wrong choice.

    John Hall, But isn’t investment spending very different from investment income?

    John Becker, Yes, which is one reason I favor targeting the forecast. I’m pretty sure that the errors are mostly unforecastable. And I also tend to think any futures contracts should pay off based on NGDI numbers, not NGDP numbers. NGDI seems much more accurate.

  5. Gravatar of Bob Murphy Bob Murphy
    27. October 2011 at 14:13

    Scott your blog’s main page is starting to look like a Nascar driver’s outfit. I guess your supply curve for ad space is upward sloping?

  6. Gravatar of StatsGuy StatsGuy
    27. October 2011 at 14:25


    Usually hits are run by a targeted adserver (like doubleclick before google acquired), so if you’re seeing lots of ads for eastern european mail-bride companies, it’s probably a function of your web viewing habits. 🙂

  7. Gravatar of StatsGuy StatsGuy
    27. October 2011 at 14:38

    Currently, one general concern with GDP data (any GDP data), is it’s inability to address the informal economy very well. We have some anecdotal evidence that the economy is slightly better off than official data appears, but that more of it’s moved into cash (contracting, informal jobs, etc.), and therefore unreported as income or production. I’ll call this the Craigslist effect.

    There are several articles about this – the growth in cash has been consistent over time, and it’s not because taxes are rising (it grew from 4% to 8+% from 1970 to 2000, and taxes went down).


    I would suggest that the cash economy is one reason that consumer expenditures have held up as well as they have – it’s also yet one more reason to move away from income taxes to a VAT – that 8-10% cash economy represents a massive loss in federal tax revenue which then must be made up by folks in the official economy (more deadweight loss).

    The extreme example, of course, is Greece.

    In terms of the impact on NGDP numbers, it’s probably not too huge from year to year, but could accumulate over years. In an NGDP targeting regime, it would be countercyclical in any case (a good thing) because more people enter the shadow economy in bad times, and move into the official economy in good times.

    It probably also means that the low income growth for the middle classes and small business owners is somewhat higher than historical data suggest (and that the effective tax burden on small business owners is not as harsh as many SMB owners argue). Of course, when it comes to SMBs, I’ve never really been able to understand what is income and what is return on capital.

  8. Gravatar of W. Peden W. Peden
    27. October 2011 at 14:45

    The Icelandic economy is very interesting. It would be interesting to see a comparative study of Icelandic budgets without bank bailouts and a counterfactual case with British and/or Irish style bailouts.

  9. Gravatar of JimP JimP
    27. October 2011 at 16:35


    More from Goldman.

    A quote:
    For the US, we advocated a shift to nominal GDP targeting, backed up with asset purchases, as the best of these options if further easing is needed. We think nominal GDP targeting probably provides the best way of communicating a credible intention to deliver a more aggressive easing without taking risks on long-term inflation. First, the framework is simple and transparent and avoids the complications of choosing a particular price index. Second, it deals directly with the problem of large excess capacity in the economy and focuses on a variable that is more directly linked to the ability to cope with debt contracts that were mostly made on the assumption that nominal income would be much higher than it currently is. Extending the price level trend for the US or UK would not deliver as strong a case for easing (and in the UK may argue for tighter policy). Third, it does not focus directly on generating inflation, which may make it more palatable to the public, or on the exchange rate, which could raise international tension. Fourth, it defines a clear exit strategy for policy and so minimises the risk of runaway inflation. Other policy options meet some of these criteria, but we think overall score less well.

    As to ads – I have Chrome with Adblock Plus and I never see one ad – not here nor anywhere else. Without it I could not stand the internet.

  10. Gravatar of Benjamin Cole Benjamin Cole
    27. October 2011 at 17:35


    There are whole industries in Los Angeles—-garments, low-end construction, cabinet-making etc—-where tons of business is done cash only, both on the sale and labor ends. I just went to a roofing supply company and they offered a discount if I paid in cash.

    Hard to know how large this underground economy is. It has always been huge in Los Angeles, due to the supply of illegal labor and the need for informal employment. Craigslist is another fillip. No doubt this is a positive, but times are still tough, tough, tough. Lots of closed storefronts in Los Angeles.

  11. Gravatar of Morgan Warstler Morgan Warstler
    27. October 2011 at 18:33

    Stats, doubleclick is doing a fair bit of behavioral targeting here, meaning, you see a bunch of ads of commercial sites you have already been to.

    After that, they target to content key words if I’m right.

    JimP, dude turn that shit off, and click ads for Scott a couple times a week.

  12. Gravatar of Bob Murphy Bob Murphy
    27. October 2011 at 18:47

    StatsGuy, right I get that (about ads being tailored to the viewer), but I’m saying the amount of ads that are built into the page itself are all over the place now. A year ago I think it was one dinky ad on the right, then there was one on the top, and this morning there was a banner across the bottom. About 35% of the screen was covered in ads.

    So I’m saying Scott must be selling more ad space now that he is hot, hot, hot and the return is higher. It’s easy to be classy when the web traffic is low.

  13. Gravatar of Morgan Warstler Morgan Warstler
    27. October 2011 at 21:37

    Bob, pls shut up.

    Capitalists DO NOT begrudge earnings.

    I don’t care if you are required to give a gynecological exam to a fat old ugly ad / brand….

    You decide if you want the content trade, if so, you take the content trade, and now that we know what kind of “woman” you are, now it is just a matter of price.

    If only ALL of Scott’s intellectual gang gave this much favor to PRICE, we wouldn’t have to put up with them pretending somehow Scott helps them buy lazy fat Dem votes.

  14. Gravatar of Morgan Warstler Morgan Warstler
    28. October 2011 at 05:45

    Not Bob, JimP!! Sorry Bob, you are a scholar and a gentleman who’s fine qualities are only exceeded by your good looks.

  15. Gravatar of James in London James in London
    28. October 2011 at 08:08

    One reason some not so sound economies got into the Euro was by adding to the GDP figure an estimate of the black economy. As the troubles have piled up in various countries the taxable GDP is the relevant data point and that seems to shrink fast as the nominal debt burden rises. It’s what you’d expect really. Sadly, it damages civil society for a while until the inevitable default or hyper-inflation is worked through. The US could be getting to that tipping point. Be careful!

  16. Gravatar of flow5 flow5
    28. October 2011 at 16:30

    As any monetarist knows, as money flows go (the roc in MVt has trended up all year), so does nominal gDp. The 4th qtr will be higher still.

  17. Gravatar of flow5 flow5
    28. October 2011 at 16:47

    A strict interpretation of the numbers suggests that the current inflation rate will double in the 4th qtr.

  18. Gravatar of Jim Glass Jim Glass
    28. October 2011 at 17:52

    StatsGuy, right I get that (about ads being tailored to the viewer), but I’m saying the amount of ads that are built into the page itself are all over the place now.

    I’ve never seen more than one ad on a page here, and I’m looking at only one now.

    Does this mean the adservers have given up on me ever clicking through on anything? (I hope.)

  19. Gravatar of ssumner ssumner
    28. October 2011 at 17:57

    Bob, A few months ago I went from one add to three. I now do posts that I think will help my advertisers make more money–such as . . . well it turns out that what’s good for America is also good for my advertisers—NGDP targeting.

    I love money more than I love being “classy.” That’s why the screen is now all tarted up.

    Statsguy, You may be right, but you need to be careful about cash. Even with no growth in the underground economy, cash demand would rise substantially at near zero rates.

    JimP, Hmmm, I wonder where G-S got all those clever ideas for defending NGDP targeting.

    flow5, I’d be shocked if we had 5% inflation in Q4.

  20. Gravatar of flow5 flow5
    29. October 2011 at 07:15

    2011 jan ,,,,,,, 0.01 ,,,,,,, 0.03
    ,,,,, feb ,,,,,,, 0.01 ,,,,,,, 0.05
    ,,,,, mar ,,,,,,, 0.02 ,,,,,,, 0.06
    ,,,,, apr ,,,,,,, 0.02 ,,,,,,, 0.06
    ,,,,, may ,,,,,,, 0.02 ,,,,,,, 0.05
    ,,,,, jun ,,,,,,, 0.02 ,,,,,,, 0.06
    ,,,,, jul ,,,,,,, 0.03 ,,,,,,, 0.04
    ,,,,, aug ,,,,,,, 0.03 ,,,,,,, 0.06
    ,,,,, sep ,,,,,,, 0.04 ,,,,,,, 0.1
    ,,,,, oct ,,,,,,, 0.03 ,,,,,,, 0.1
    ,,,,, nov ,,,,,,, 0.04 ,,,,,,, 0.09
    ,,,,, dec ,,,,,,, 0.04 ,,,,,,, 0.08

    There are errors with both numbers (M)&(Vt), but inflation will be higher in the 4th qtr.

    First column real-output. Second column inflation.

  21. Gravatar of Scott Sumner Scott Sumner
    30. October 2011 at 08:12

    flow5, Those numbers mean nothing. You need to label the table properly if you want anyone to pay attention.

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