With today's release of revised GDP data for the second quarter, we now see this measure of aggregate economic growth increased 3.3 percent. Exports were much stronger than initially thought and companies apparently didn't liquidate inventories to the same extent that they had during the first three months of this year. Corporate profits also managed to rebound slightly after slipping in each of the two previous quarters. In the grand scheme of things, did these revisions provide any new insight? Not really, since most indicators already pointed to a solid second quarter despite the headwinds caused by the credit crunch, energy prices, and, lest we forget, the housing market.
Perhaps the more important point to consider should be: What do we call the current economic environment? A recession, a slowdown, what exactly? Many might consider this an academic debate for nerdy economists; however, since fiscal and monetary policy recommendations arise from how people perceive the economy (namely disgruntled voters) the question is an important one. A recent paper released by a Federal Reserve economist suggests rather than GDP, gross domestic income (GDI) has done a better job at identifying the start of the last several recessions. GDI is just as the name denotes – an aggregate measure of income, whether it is personal, corporate, etc. Using this measure, we see that the economy expanded 1.9 percent during the second quarter of 2008, but actually shrank in each of the last two quarters. Is this an indication that a recession actually happened? Not necessarily. For the official call, we'll have to wait for these guys.