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US economy weaker than thought in year’s first half, by one measure

Gross domestic income, adjusted for inflation, grew at a 0.8 percent annual rate in the first quarter of the year and barely grew at all — at just a 0.1 percent rate — in the second, the Commerce Department said Thursday.Andrew Harrer/Bloomberg

A key measure of US economic output grew more slowly in the first half of the year than previously believed, government data released Thursday showed.

Gross domestic income, adjusted for inflation, grew at a 0.8 percent annual rate in the first quarter of the year and barely grew at all — at just a 0.1 percent rate — in the second, the Commerce Department said Thursday. That was sharply weaker than the 1.8 percent and 1.4 percent growth rates reported in earlier estimates.

Gross domestic product, a better-known measure of inflation-adjusted output, shrank during both periods, at a 1.6 percent rate in the first quarter and a 0.6 percent rate in the second. Those figures were unchanged from earlier estimates.

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Taken together, the two measures suggest economic growth was at best anemic in the first half of the year. At worst, the economy had been shrinking for two consecutive quarters — a common, though unofficial, definition of a recession. An average of the two measures, which some economists consider more reliable than either individual figure, shows that output shrank slightly in the first half of the year.

The conflicting signals sent by the two measures of output in recent quarters had been something of an economic mystery because, in theory, the two indicators should be identical. GDP measures the value of all the goods and services produced and sold in the country; the lesser-known gross domestic income measures all the money earned by individuals, businesses, and other organizations. Because one person’s spending is someone else’s income, the two figures should add up to the same amount.

In practice, the two measures rarely align perfectly because they are derived from different data sources. Recently, however, they diverged sharply, which government statisticians attributed in part to the big shifts in economic activity caused by the pandemic, as well as difficulty accounting for the huge aid programs enacted to combat it. Before the latest revisions, government data showed gross domestic income as $773 billion larger than gross domestic product in the second quarter of this year, a gap of nearly 4 percent.

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The updated data released Thursday helped narrow the gap to 1.3 percent. Gross domestic income was revised downward both last year and this year, mostly because workers’ earnings grew less than previously believed. Gross domestic product was revised upward in 2020 and 2021, mostly because of stronger consumer spending, especially on services, as well as increased exports.

Those upward revisions to GDP years mean that the recovery, taken as a whole, looks stronger than earlier figures suggested. They indicate that GDP returned to its pre-pandemic growth path at the end of last year, a remarkably rapid recovery from the deep pandemic recession.

More recently, however, the fastest inflation in decades has knocked the wind out of the economy’s sails. In the third quarter, which ends Friday, most forecasters believe GDP has grown, but only barely. A forecasting model from the Federal Reserve Bank of Atlanta, which has not yet been updated to reflect the revised data, estimates that GDP grew at just a 0.3 percent rate in the third quarter.

The revisions are part of an annual process in which the government incorporates more complete data from the IRS, state unemployment insurance systems, and other sources that aren’t available in time for the Commerce Department’s quarterly estimates. The updates affect data going back five years, although the changes to earlier years were mostly small.

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