Recession Nugget: What’s the deal with GDP and GDI
GDI and GDP are conceptually equivalent by definition, and therefore spreads between the two are often viewed as simple statistical measurement errors. But while smaller spreads don’t necessarily tell you that much about underlying movements in the economy – an+3 std. dev. movement in the spread should make you stop and think twice about it.
To translate: +3 std. dev. is equivalent to a < 0.3% probability of it happening, which should turn the alarm bells on. (Of course such an error could happen, but the timing is interesting)
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Chart 1: Largest spread in GDP vs GDI ever?