GDP and GDI usually match up. Right now they don't : The Indicator from Planet Money Welcome to the Global Growth Gym, where countries are working out their economies. Over in the corner, the U.S. is standing there on a weight scale, just a tad confused...

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When GDP and GDI part ways

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And I'm Paddy Hirsch. Just let me finish this set - eight, nine...

WOODS: Wait. What are you doing, Paddy? (Laughter).

HIRSCH: ...Ten. Oh.

WOODS: We got a podcast to make.

HIRSCH: I'm just finishing a little workout here. I know it's a little weird, but a gym is actually a great place to explain the metrics that the Bureau of Economic Analysis uses to monitor growth. You work out, Darian, don't you?

WOODS: I've been to a gym probably a grand total of once in my life (laughter).

HIRSCH: Well, now, you may know what I'm talking about - hopefully, some of our listeners do - when I say that most people who work out use some very specific measurements to keep an eye on their physical growth. For me, it's my weight and my muscle tone. And for the United States of America, its gross domestic product, or GDP, and gross domestic income, or GDI.

WOODS: OK. I get where you're heading with this because usually these two metrics track each other very closely. But at the moment, they are diverging quite sharply. And that's because the government uses these metrics to determine how the economy is growing, and this whole divergence is throwing the Biden administration for a bit of a loop.

HIRSCH: That's right. It's like, are we growing? Are we shrinking?

WOODS: Are we getting more portly? Are we getting more emaciated? We don't know.

HIRSCH: (Laughter) We don't know. The signals are seriously mixed. And that makes it hard for people like the president and the chair of the Federal Reserve to decide what to do.

WOODS: On today's show, the gap between gross domestic product and gross domestic income - what it is, why it's gotten so wide and why that is such a big deal.


HIRSCH: Welcome, Darian, to the global growth gym. Have you been here before?

WOODS: Not to this particular one, no.

HIRSCH: Well, let me show you around. It's a little slow, with everything going on in the world, but we've got the usual suspects, or most of them, here.


HIRSCH: That's China doing head-stand push-ups over there.

WOODS: Yep, upside down.

HIRSCH: Brazil on the bench press. Over there, kind of isolated in the corner out there, there's Russia. It's working off a brutal hangover but still...

WOODS: Gosh.

HIRSCH: ...Looking pretty good, all things considered. And Germany - where's Germany? Oh, yeah, that's right. Germany called in sick today - got a bit of a gas problem.

WOODS: (Laughter) OK. And who is this crouched in the corner over there?

HIRSCH: Oh, that's the U.K. Yeah, they went into a deep squat earlier, and now they're kind of stuck - bit of a muscle spasm.

WOODS: Right.

HIRSCH: Of course, back in the day, Germany would have helped them up, but these days, they're kind of on their own.

WOODS: Yeah. And I think I can see the U.S. over there, on the weighing scale, looking a little confused.

HIRSCH: Yes, the U.S. looking a little confused because it's getting wildly conflicting signals from its growth metrics. One metric, gross domestic income, is telling the U.S. that it's bulking up. You know, you've got great muscle tone. Yay. The other metric, gross domestic product, is saying that the U.S. is wasting away. It's losing weight. Oh, no.

WOODS: So gross domestic product and gross domestic income - these are the two big economic indicators released by the Bureau of Economic Analysis every quarter. And to explain what they are, here's Veronika Dolar, professor of economics at the State University of New York, Old Westbury.

VERONIKA DOLAR: GDP, gross domestic product, is trying to measure all the stuff produced in a country. What we count is the market value of all these goods and services that are produced in a country.

HIRSCH: It's a pretty simple indicator that basically adds up four data points - consumer purchases, investments, government purchases, and net exports. Gross domestic income, on the other hand, is what we earn. And that can be a shade more complicated.

DOLAR: You know, it has wages and salaries and profits and interest income and rental income and taxes and subsidies and statistical adjustments. So there are many, many, many different parts that are going into it.

HIRSCH: So in essence, like weight gain and muscle mass in an athlete, GDP and GDI are two different metrics made up of two different sets of data, but they actually add up to the same thing, whether the economy is growing or shrinking.

DOLAR: The idea is that, for the economy as a whole, income equals expenditure because every dollar a buyer spends is a dollar of income to the seller, right? So gross domestic product, which is the expenditure part, and gross domestic income are exactly the same thing, at least in theory. The reality, of course, it's a little bit more murky.

WOODS: It's murky because the data for GDP and GDI come from a wide variety of very different sources. And for one thing, they don't all come in at the same time. So this is one reason why there is a 1% difference between GDP and GDI.

HIRSCH: Yeah. And the bean counters at the BEA call this difference the statistical discrepancy. Sounds like something out of "Harry Potter," doesn't it? Anyway, and it usually evens out over time as the numbers get revised. Over the last couple of years, though, Veronika says something kind of weird has been happening.

DOLAR: Since 2020, this gap between gross domestic income and gross domestic product has been widening. And most recently, it has been around 4%.

WOODS: Four percent - so this starts to feel like more than just a statistical discrepancy.

HIRSCH: Yeah, I mean, it runs out at nearly a trillion dollars. So that's a big...

WOODS: That's a lot.

HIRSCH: ...Discrepancy.

WOODS: Yeah.

HIRSCH: Yeah. And what's even more troubling about it is the direction in which GDP and GDI have been diverging. I mean, GDI, the income that we've all been making, has actually been rising. And by that measure, the U.S. is gaining a reasonable amount of muscle mass, right? Looking pretty healthy.

WOODS: GDP, on the other hand, has been falling. It's down 1.6% in the first quarter. So this indicates that the U.S. is losing weight. It's not growing, but shrinking. How can this be? Well, Veronika says there are a bunch of theories out there about this.

DOLAR: The idea is that either the gross domestic income somehow is overstating things. At the same time, we might have the same problem where the gross domestic product is actually understating things - or possibly both. It might have to do with the COVID crisis and all these layoffs and people working part time, at home, remote.

HIRSCH: And this makes sense, right? I mean, it's kind of like an athlete who had this great formula for growth using a certain diet and a certain exercise regime that bulked them up year after year. But then comes COVID and masking and social distancing.

WOODS: They can't eat out at the usual places. They have to order in. They can't get the supplements from China that they like. They're improvising with locally grown herbs. The gym is closing. They don't have the same machines at home to work with, so they have to use dumbbells.

HIRSCH: It's a disaster. And, of course, different diet and exercise equals different results. And the same thing goes for the U.S. economy. COVID changed the way that we do things quite radically. And that, of course, changed the inputs into GDP and GDP so that the results have changed as well.

DOLAR: There has been a really major shift in terms of how we work, where we work, what we use for work. And this kind of accounting is not catching up with all these changes. And it's sort of lagging in terms of how things are being reported and counted and where.

HIRSCH: Now, this all might just sound like an accounting issue, which will eventually sort itself out. The problem is that in the interim, it's causing a pretty big headache for the government. That's because GDP and GDI aren't just these insignificant blips of data. They're widely reported, particularly GDP, and they're used as key indicators of the health of the economy.

WOODS: The government doesn't make all of its economic policy based on where GDP and GDI come in, but they are a big factor in its decisions. So when the two diverge - one's telling you the economy is struggling, the other tells you it's doing OK - it makes it hard to make a call.

HIRSCH: Yeah. It's like our athletes. If muscle mass is up - cool - and weight loss is down - uh-oh.

WOODS: Uh-oh.

HIRSCH: What are you going to do? Are you going to change your diet? Are you going to adjust your workout routine? It's kind of hard to tell.

WOODS: For the government, it means big decisions. Like, do we spend billions of dollars stimulating the economy? Do we cut or raise taxes? Do we increase interest rates and at what speed? These are hard calls with huge implications that can cost a lot of money.

DOLAR: One of the solutions that can come in handy is basically a third alternative, which is the GDO.

HIRSCH: The GDO. This is something the Obama administration came up with a few years ago. It's called gross domestic Obama.

WOODS: I didn't know that.

HIRSCH: I'm just kidding. I'm just kidding. GDO stands for gross domestic output.

WOODS: That makes more sense.

DOLAR: And what this basically does, it takes the average of the two, right? So instead of focusing on GDP, whether or not it's understating things, focusing on GDI and fearing that maybe it's overstating things, well, why don't we split the difference and just take the average of the two?

WOODS: Genius.

HIRSCH: Thanks, Obama.

WOODS: And in fact, this is something that the BEA has been doing for some time. It's released this average between GDP and GDI. And it turns out that GDO has become quite an accurate predictor of where gross domestic product will end up once all the myriad of revisions are done with.

HIRSCH: Is it a useful indicator, do you think?

DOLAR: I mean, I think it does the job.

HIRSCH: Good enough for government work, you think, Darian?

WOODS: Yeah, I think so. Yeah.

HIRSCH: Yeah. Veronika says the eggheads at the BEA are actually beginning to tinker with GDO now, weighting the average a little to make it as accurate a predictor as possible.

WOODS: And the hope is if they get it right, it won't matter so much in the future if we have a divergence between GDP and GDI, even one as wide as the chasm the government is peering into today.

HIRSCH: Yeah, hopefully not any huge changes in diet and exercise, like nothing but kale shakes.

WOODS: Yeah. Government (ph).


WOODS: The show is produced by Jamila Huxtable with engineering from Maggie Luthar. It was fact-checked by Kathryn Yang. Viet Le is our senior producer. And Kate Concannon edits the show. And THE INDICATOR is a production of NPR.


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