With the release of the second GDP, we get the following graph of aggregate output:
figure 1: GDP (black), GDPNow forecast for 2/27 (light blue square), GDP+ scaled to Q4 2019 (red), GDO (blue), GDI (tan), all in billions. 2017 quarter seasonally adjusted (SAAR). GDI and GDO in the fourth quarter of 2023 are based on the assumption that corporate earnings in the fourth quarter of 2023 will be the same as in the third quarter of 2023. Source: BEA, Federal Reserve Bank of Philadelphia, Federal Reserve Bank of Atlanta, and author's calculations.
The spending side measure of “Y” (as I tell my macro students) continues to be higher than the income measure. Note that we do not know GDI and GDO for the fourth quarter of 2023 because corporate earnings are unknown. I forecast GDI and GDO, assuming corporate earnings remain unchanged from the third quarter to the fourth quarter. Under this assumption, GDI continued to grow in the fourth quarter.
What about final sales, a better measure of aggregate demand? This also continues to grow.
figure 2: Final sales (blue, left scale), GDPNow forecast 2/27 final sales (light blue squares, left scale), final sales to domestic private individuals (tan, right scale), all in 2017 Billions of dollars seasonally adjusted. Source: BEA, Federal Reserve Bank of Atlanta, and author's calculations.
In the fourth quarter, final sales to domestic private buyers, which some observers consider a better measure of momentum, were 2.8% quarter-on-quarter AR, while GDP growth was 3.2%. Therefore, aggregate demand momentum appears strong. For the first quarter, GDPNow said the growth rate in the first quarter was the same…
By the way, please note that GDP+ did not fall twice in a row in the first half of 2022, and GDI only fell by a quarter. Neither measure of final sales showed a second consecutive quarter of decline.
