Economic Growth Might be Higher Than We Think, But Only Slightly

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Binyamin Applebaum says the economy may be growing faster than we think:

Buried deep inside the government’s revised estimate of fourth-quarter growth (revised but unchanged at 3 percent annualized) is an alternate measure of economic activity that is winning increased attention. And by that alternate measure, gross domestic income, the annualized pace of growth in the final three months of 2011 actually climbed to 4.4 percent.

That’s the kind of growth we usually see during an economic recovery, the kind of growth that’s fast enough to create new jobs. Indeed, it suggests that we may have learned the answer to a fretful mystery. Until now, economists have struggled to explain why unemployment was falling so fast when the major measure of growth, gross domestic product, was rising at an exceedingly modest pace.

That’s good news. Just a note of caution, though. GDP measures production of goods and services, while GDI measures the income used to buy goods and services. In theory, they should be identical, but noise in the statistics means they don’t always come out quite the same. Sometimes GDI is less than GDP and sometimes it’s more. Last quarter it was more.

But if you look at 2011 as a whole, total growth comes to 1.7% on a GDP basis and 2.1% on a GDI basis. That’s not a huge difference. The higher GDI figure really does suggest that recent growth might have been stronger than we think, but only a little bit stronger.

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