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US economy picking up steam—beyond the official data

Don't look now, but the American economy is doing better — maybe a lot better — than much of the latest data would suggest.

On Friday, the government bumped up its official tally of the total U.S. output of goods and services in the first three months of this year. The latest estimate pegs GDP growth at 0.8 percent, up from the initial report of just 0.5 percent.

The change reflects fresher data showing stronger spending on homebuilding, increased investment by businesses in building up inventories and a smaller headwind from a global slowdown in trade. Corporate profits also picked up better than the initial accounting last month.

All of which is a reminder that these initial reports, despite the precision included in the data tables, are only best guesses.

The Commerce Department's quarterly GDP report is widely watched as the main barometer of economic growth. But tracking the millions of moving parts in an $18 trillion economy is daunting.

Collecting and analyzing all that data takes time, which is why the official reporting process includes multiple revisions that can take years to complete. (The official GDP print for the first quarter of 2002, for example, wasn't finalized until July 30, 2014.)

That's also why most economists rely on other economic data to gauge the overall health of the economy. Based on those other measures, the latest official GDP report looks like it's understating how well the economy is performing.

For starters, businesses are expanding payrolls at a healthy clip, providing a boost to consumer spending. Many of those paychecks are getting bigger, which also helps fuel growth. That increased spending power has produced a strong rebound in retails sales, according to the latest monthly data.

Fewer workers are losing their jobs, a trend that shows up in separate data tracking the number of people signing up for unemployment benefits. That number has fallen to the lowest level in more than four decades.

Look a little closer in the GDP report and those signs of green shoots are there in the Commerce Department's data release Friday. While the media spotlight shines brightest on the single, "headline" GDP number, our government bean counters, in fact, use two separate measures to track how well the American economy is doing.

Gross Domestic Product measures how much we all spend in any given three-month period; consumers, business, investors, governments, importers, exporters, etc.

But there's another measure called Gross Domestic Income, which tracks how much we all earn from all that spending.

In theory, those two numbers should be the same. But the government tally relies on different data sources, which means that in the short term they usually diverge. Sometimes widely.

In the latest data dump, the GDI measure grew by 2.2 percent versus the 0.8 percent GDP headline number.

The difference, according to the Bureau of Economic Analysis website, is the result of " sampling errors, coverage differences, and timing differences with respect to when expenditures and incomes are recorded."

Some economists who rely on the data, though, are left scratching their heads.

"Seeing the gap between GDP and GDI, the statisticians definitely need to take another look at this," Paul Ashworth, an economist at Capital Economics, said in a note to clients.