First, the data is preliminary and still adjusting to COVID-related changes to the surveys.
Second, CPI and PCE inflation surveys had to adjust methodology in March 2020.
Third, trade imports has temporarily surged in official statistics because of supply chain bottlenecks.
I could go into more detail, but the overall point is that:
1. GDI/GDP average reflects the recent economic performance better than GDP or GDI.
2. Price surveys are backwards looking, using slightly outdated baskets. Prices today are likely higher than the GDI/GDP estimates say.
3. GDP tends to decrease (on net) from import surges while GDI increases (on net). This shouldn't be true on an annual basis but it is on a quarterly basis. Just depends on when the customs agency books the import & export.
Yeah, that's important—but I don't think it lends credence to one theory over another. It might just be that data from mid-2020 and before comes from more comprehensive sources that aren't yet available for quarterly estimates.
Under the table payments and transfers abroad are counted, but the BEA explicitly doesn't look at criminal earnings (though these represent very small amounts and shouldn't be responsible for the discrepancy between GDP and GDI).
Occam's razor would suggest labor shortages have driven inflation and GDI is overestimated. NPR did a great piece about women leaving the workforce. There is no way to not sound chauvinistic here, but if a lot of people leave the workforce; it may take awhile for that arrow to land in the reporting,
Isn’t it possible that PPP forgiveness created money out of thin air and that this created the market mismatch that caused inflation to rapidly grow? All it would take to account for this is a bit of hand waving that estimates the unnecessary PPP
loans (those that were unwarranted by economic circumstances but legal under the rules established by Congress to measure proper forgiveness). That there was a trillion dollar mismatch here should come as very little surprise to anyone who remembers that the decision to give forgiveness was made in a roughly 4 week period during the initiation PPP design. The problem compounded when 2nd and 3rd rounds of relief were initiated by Congress.
I don't think that could be the issue—even if large chunks of PPP loan awards were fraudulent (big if), the government still keeps good track of total spending on origination/forgiveness. Now that the origination of PPP loans has ended and the window to apply for forgiveness has largely passed, BEA estimates that the amount going into PPP subsidies each quarter has been $0 each quarter of 2022.
Fraud is certainly being discussed by more credible news outlets. But it doesn’t seem like it has the impact that is needed to discuss the discrepancy between gdp and gdi.
There are multiple likely explanations:
First, the data is preliminary and still adjusting to COVID-related changes to the surveys.
Second, CPI and PCE inflation surveys had to adjust methodology in March 2020.
Third, trade imports has temporarily surged in official statistics because of supply chain bottlenecks.
I could go into more detail, but the overall point is that:
1. GDI/GDP average reflects the recent economic performance better than GDP or GDI.
2. Price surveys are backwards looking, using slightly outdated baskets. Prices today are likely higher than the GDI/GDP estimates say.
3. GDP tends to decrease (on net) from import surges while GDI increases (on net). This shouldn't be true on an annual basis but it is on a quarterly basis. Just depends on when the customs agency books the import & export.
Why this statistical discrepancy seems to start mid 2020 may be of relevance?
Yeah, that's important—but I don't think it lends credence to one theory over another. It might just be that data from mid-2020 and before comes from more comprehensive sources that aren't yet available for quarterly estimates.
Enlightening piece!
Thank you!
One persons spending does not equate another persons income if earned money is sent to family abroad.
Is earned money spent on illegal drugs counted ?
Is money earned "under the table" counted ?
Under the table payments and transfers abroad are counted, but the BEA explicitly doesn't look at criminal earnings (though these represent very small amounts and shouldn't be responsible for the discrepancy between GDP and GDI).
Thank you for answering.
Occam's razor would suggest labor shortages have driven inflation and GDI is overestimated. NPR did a great piece about women leaving the workforce. There is no way to not sound chauvinistic here, but if a lot of people leave the workforce; it may take awhile for that arrow to land in the reporting,
Isn’t it possible that PPP forgiveness created money out of thin air and that this created the market mismatch that caused inflation to rapidly grow? All it would take to account for this is a bit of hand waving that estimates the unnecessary PPP
loans (those that were unwarranted by economic circumstances but legal under the rules established by Congress to measure proper forgiveness). That there was a trillion dollar mismatch here should come as very little surprise to anyone who remembers that the decision to give forgiveness was made in a roughly 4 week period during the initiation PPP design. The problem compounded when 2nd and 3rd rounds of relief were initiated by Congress.
I don't think that could be the issue—even if large chunks of PPP loan awards were fraudulent (big if), the government still keeps good track of total spending on origination/forgiveness. Now that the origination of PPP loans has ended and the window to apply for forgiveness has largely passed, BEA estimates that the amount going into PPP subsidies each quarter has been $0 each quarter of 2022.
https://www.bea.gov/sites/default/files/2022-08/effects-of-selected-federal-pandemic-response-programs-on-federal-government-receipts-expenditures-and-saving-2022q2-2nd.pdf
Fraud is certainly being discussed by more credible news outlets. But it doesn’t seem like it has the impact that is needed to discuss the discrepancy between gdp and gdi.
https://www.nbcnews.com/politics/justice-department/biggest-fraud-generation-looting-covid-relief-program-known-ppp-n1279664
I had the same question while reading this. There is an online way to report fraud PPP loans now as well.