According to the final figures released last week by the Bureau of Economic Analysis, U.S. Gross Domestic Income grew at a strong 4.4 percent annual rate in Q4 2011. Growth of GDI outpaced that of GDP, which was unrevised at 3 percent, itself the strongest of the year. As the chart shows, it was the second consecutive quarter that GDI had grown faster than GDP.
In theory, gross domestic product and gross domestic income are equal. Every act of production must, by definition, generate income for someone in the form of wages, rents, interest, or profits. In practice, the BEA measures the two using two different data sets. It calculates GDP as the sum of expenditures on consumption, investment, government purchases, and net exports. GDI is the sum of observations of compensation of employees, proprietors income, corporate profits, and other income items. Not surprisingly, the two do not match, partly because of differences in methods and partly because of errors and omissions. The BEA calls the difference between GDI and GDP the statistical discrepancy. It was unusually large in Q4 2011.
Does the difference in GDI and GDP growth have any real significance, or is it a mere statistical quirk? Some optimists think that the stronger growth of GDI over recent quarters shows that GDP is understating the true pace of economic activity. If so, it would help explain why the job market is performing more strongly than the GDP data would suggest. For example, as I detailed in this recent post, the employment gap is closing significantly faster than the output gap. Next month's jobs data and the preliminary income and product reports for Q1 2012 should provide some indication as to the validity of this hypothesis.
There were not many other surprises in the BEA's final report for Q4 2012. One small change was a downward revision of nominal GDP growth from 3.9 percent to 3.8 percent. That news would come as a disappointment to NGDP targeters, who would like to see growth of 4.3 to 5 percent in the long run. In view of the still-substantial output gap, it would be desirable to see NGDP growing even faster than that at present. Those who share this line of thought will continue to push for more expansionary monetary and fiscal policies.
Follow this link to view or download a brief slideshow with charts of Q4 national income and product data.