A key measure of economic output continued to grow last spring, easing fears that the United States is entering a recession, but adding to confusion about the state of the economy.
Gross domestic income, adjusted for inflation, rose 0.3 percent in the second quarter, the Commerce Department said Thursday. That was down from 0.5 percent growth in the first quarter. The increase in the second quarter was the equivalent of a 1.4 percent annual growth rate.
The continued growth in gross domestic income is an encouraging sign for the economy but is also perplexing because a better-known measure of economic output, gross domestic product, has declined for the past two quarters.
The Commerce Department on Thursday said that GDP, adjusted for inflation, fell 0.1 percent in the second quarter. That represented a modest upward revision from the government’s preliminary estimate last month, which showed GDP falling 0.2 percent. (The numbers will be revised again next month.)
The conflicting signals are a mystery because the two measures, in theory, should be identical. They measure the same thing, economic output, from opposite sides of the ledger: One person’s spending is someone else’s income. In practice, the two indicators do not always match because the government cannot measure the economy perfectly, but they have rarely diverged this much for this long.
The divergence matters because both numbers cannot be right, and some economists believe the figure on income is likely to be closer to the mark, because the government collects more detailed data on income. Both the Bureau of Economic Analysis, which produces the numbers, and the National Bureau of Economic Research — the semiofficial arbiter of when recessions begin and end in the United States — recommend looking at an average of the two indicators. By that measure, economic output grew in both the first and second quarters, and growth actually accelerated somewhat in the spring.
Diane Swonk, chief economist for the accounting firm KPMG, said the story being told by the income measure is consistent with other data showing that the economy is still growing but more slowly than it did last year. At the same time, high inflation makes people feel like they are losing ground.
“We weren’t in a recession from an economists’ standpoint, but that doesn’t really matter,” Swonk said. “It felt like a recession to so many people in the first half of the year.”
Even beyond the conflicting measures of output, the data released Thursday showed an economy being pulled in different directions. Consumer spending grew faster in the second quarter than initially calculated. Corporate profits, which fell in the first quarter of the year, rebounded in the second. Personal income also rose, powered by the strong job market. Separate data from the Labor Department on Thursday showed that filings for unemployment insurance fell last week for the second week in a row.
Yet other parts of the economy show signs of weakness. Businesses pulled back investments in equipment and buildings in the second quarter. Construction activity and home sales have fallen sharply as higher interest rates have made it more expensive to borrow.
Policymakers at the Federal Reserve are weighing the various signals as they decide how aggressively to fight inflation. The central bank has raised interest rates by an unusually large three-quarters of a percentage point at each of its past two meetings, and policymakers have signaled they are open to a third straight supersize increase at their next meeting, in late September. But they are also considering a smaller, half-point increase in light of recent signs that inflation may at last be cooling.
Fed Chair Jerome Powell will give an update on his assessment of the economy Friday in a speech at the bank’s annual retreat in Jackson Hole, Wyo. But the decision on how much to raise rates may depend on economic data released over the next few weeks, including the August jobs report, coming Sept. 2, and a report on consumer prices due Sept. 13.