GDP vs. GDI

The WSJ's Real Time Economics blog points to some signs of weakness in today's updated reading of second quarter GDP:

Gross domestic income, which Fed officials have in the past highlighted as perhaps a better measure than GDP, advanced just 1.9% at an annual rate last quarter after contracting the two previous quarters. Thursday's report is the first to show first quarter GDI in the red.

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GDP is a consumption-based measure, adding up consumer, business and other spending and investment as well as net exports. GDI is income-based, adding up things like personal income and corporate profits. GDI is included in quarterly GDP, but not in the first, or "advance," estimate, so Thursday's report was the first for second quarter GDI.

In theory, the two should equal each other, but they don't always. In recent quarters, net exports seem to be the main reason, since they flow directly into GDP but only indirectly into GDI. In addition, GDI more heavily reflects corporate profits than GDP does.

Here is a chart from Wrightson-ICAP which plots GDP vs. GDI:

GDI has weakened more than GDP during the last two recessions and looks to be doing the same thing now. From Wrightson-ICAP:

In this particular case, the unusually wide statistical discrepancy is another bit of circumstantial evidence suggesting that the surprisingly high Q2 GDP growth rate may be overstated.

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