It is not only in the world of finance where analysts and hedge fund managers come up with bizarre metrics to justify a stock, in the world of macro this too appears to be the case. After GDP numbers this quarter disappointed, the White House put out a white paper touting GDO. As we explain below..
The Bureau of Economic Analysis (BEA) started publishing the Gross Domestic Output (GDO) as a more accurate measure of economic growth than Gross Domestic Product (GDP) and Gross Domestic Income (GDI), according to the White House.
Joel Greenblatt Owned Hedge Fund On Why Value Investing Isn’t Working Now
Acacia Capital was up 12.27% for the second quarter, although it remains in the red for the year because of how difficult the first quarter was. The fund is down 14.25% for the first half of the year. Q2 2020 hedge fund letters, conferences and more Top five holdings Acacia's top five holdings accounted for Read More
GDO is the average of GDP and GDI
The White House released an issue brief explaining that the GDO is the average of the GDP and GDI, both designed to measure the country’s economic growth.
The GDP measures all expenditures on final goods and services produced in the United States while the GDI tracks all income received by producers.
According to the White House, Conceptually the two should be equal because every dollar spent on a good or service (in GDP) must flow as income to a household, a firm, or the government (and therefore must show up in GDI). However, the two numbers differ in practice because of measurement error.”
The White House emphasized that “some measurement error is unavoidable when attempting to track and increasingly complex economy using limited data” even if the BEA and other Federal statistical agencies are doing every effort to minimize inaccuracies.
The BEA publishes an estimate of the GDP growth nearly a month after the end of every quarter and makes revision after two months. The GDI comes out nearly two months after each quarter due to data lags.
The simple arithmetic average of the GDP and GDI is a reasonable way to combine both measures to achieve a more accurate measurement of the U.S. economic growth. The GDO combines two economic perspectives in one blended measure of output, according to the White House.
The White House noted that some countries were measuring economic output using product-side and income-side estimates. For example, Canada is presenting its income and product estimates as “GDP by Income and Expenditures Account.
U.S. GDP increased 2.3% in the second quarter
Today, the BEA reported that the U.S. GDP increased at an annual rate of 2.3% during the second quarter (advanced estimate). The agency also revised the first quarter GDP, up by 0.6%, wiping the previously reported contraction.
Economists polled by Bloomberg estimated a 2.5% GDP growth in the second quarter.
Eric Green, head of U.S. economic research at TD Securities told Bloomberg, “We had better growth and better inflation in the first half. This should make the Fed feel more comfortable about raising interest rates.”
See full PDF below.