Why Oh Why Can't We Have a Better Press Corps? (Yet Another WSJ Editorial Edition)
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Gross Domestic Product and Gross Domestic Income

Everyone should read Daniel Gross's "Economic View" column this forthcoming Sunday: he's trying to make sense of the fact that estimates of National Product show productivity growth reverting to its average post-1995 pace, while estimates of National Income continue to show more rapid productivity growth. It's an important topic, and it's bound to be a good column.

Meanwhile, here's a short squib from Business Week on the issue:

On Aug. 9, the Bureau of Labor Statistics said that in the second quarter, the most widely followed measure of productivity, output per hour in the nonfarm business sector, grew at a 2.2.% annual rate from the first quarter. Over the past year, productivity increased just 2.3%, down sharply from the 5% yearly pace seen at the end of 2003.... [B]ut the BLS actually calculates a second broad measure of productivity, one that shows a more robust trend... covers only the nonfinancial corporate sector... shows productivity in the first quarter grew 5.4% from a year ago... faster than the 4.5% yearly clip recorded at the end of 2003....

Neither set of data is necessarily better.... They just use different measures... gross domestic product... [and] gross domestic income. Theoretically, the value of products and the income they generate should be the same....

What raises this debate into the realm of policy importance is that, in the past, Greenspan has tracked this second set of productivity data closely....

In the nonfarm business measure, smaller gains in efficiency are no longer offsetting increases in labor compensation. As a result, it now costs businesses far more to make and sell one unit of their product. Last quarter, nonfarm unit labor costs... were up 4.3% from a year ago, the fastest yearly clip in nearly five years.... But within the nonfinancial [corporate] sector... unit labor costs are up by just 1.4% from a year ago.... Which is right?.... [O]ne advantage of the nonfinancial corporate numbers is that... they give more of an "apples and apples" comparison between compensation and output.... [T]he surprising strength of profits so far this year suggests that the more sanguine reading of unit labor costs from the nonfinancial sector may well be closer to the truth....

And here's a graph showing the ratio of (measured) national product to (measured) national income:

From 1995 to 2000 the ratio of product to income shrank as measures of product grew more slowly than measures of income. This was important: for five years measures of productivity on the income side grew 0.8% per year faster than measures of productivity on the product side. Then for three years measures of product grew 0.9% per year faster than measures of income. And in the past four quarters it looks like it has turned around again, with income growing 0.6% per year faster than product.

It's a data issue I don't understand. It's a vitally important data issue--especially if you have a view of the world that gives some weight to what's going on with unit labor costs as a look into the guts of the inflation-unemployment relationship and to the current level of the natural rate of unemployment.

I am not a happy camper.