By now you're all aware that GDP declined in the first quarter. Here's why:
Consumer spending, government spending, and private investment—the key components of GDP—were up 1.8% on an annualized basis last quarter. That's no great shakes, but it's not too bad either.
However, imports and exports are also a part of GDP. Normally they aren't big compared to domestic production, but last quarter was peak panic over supply chain problems. In the end, businesses imported so much stuff to fill out their inventories that it wiped out the domestic gains. On net, real GDP was down 1.4% on an annualized basis.
The good news is twofold. First, warehouses are starting to fill up. Second, consumer income and consumer savings were down, but only a bit. It's enough to cool the economy and rein in inflation a bit, but not big enough to suggest a recession is on the way. Cross your fingers.
Sensible observations from Kevin here. Unfortunately the MSM has been spending the day advising us that it's really time to set our hair on fire and then find a nearby bridge to leap off because it's all over and even if we do survive the looming economic depression, a nuclear war with Russia will finish us off.
The Street may be thinking like Kevin--stock market's up almost 3% today. Caveats about short-term fluctuations (and certainly, the market is way down so far this calendar year), but the "smart" money seems to be unconcerned.
Markets don't care about gdp reports. Their trash compactor bad in quality
Hey, you should have read the latest Victor Davis Hanson screed. An unhinged, hysterical rant about how Joe Biden personally has destroyed the US economy, US foreign policy, US credibility, blown up the national debt to over $30T, summoned untold millions of illegal Mexican aliens to swarm across the border to eat out our substance... Well, it's all there except for the plague of locusts.
Jeepers why would I read that??!?
Sounds like he's for repealing the Trump tax cuts?
Illegal immigration surged under Donald Trump in 2020. Doesn't work Hanson. Unemployment is low. What is, is.
It's true mathematically that the increase in (negative) net exports exceeded the increase in consumer, government, and business spending, but it's not true economically that imports "wiped out" those other items. Rather, the point is that more of what was consumed was imported, to the point that there was a net decrease in domestic production. In other words, imports "wiped out" domestic production, not domestic consumption.
I don’t think that you can conclude that from the aggregate numbers. GDP is a value-added figure, so the value of ‘intermediate goods’ is subtracted from the value of final goods. So importing a lot of intermediate goods that haven’t yet been built into final goods would have the same negative effect on GDP. As might happen when a ‘logjam’ of imported goods starts flowing freely.
C includes imports and then it's subtracted out in the Net exports portion. Imports had no impact on lower GDP.
All the stimulus money is gone.
Nope. BEA sucks.
Nominally, GDP in Q1-2022 was higher than Q3-2018 through Q2-2020. GDP didn't shrink; it grew slower at an annualized rate than the previous handful of quarters because the effect of the massive stimulus acts had mostly disappeared through Q4-2021.
The annualized GDP number doesn't indicate a cooling of the economy. Recessions are defined by the end of the business cycle, which, as has been noted, fixed investment hadn't declined. Businesses are still in expansion mode.
What did shrink is federal spending, specifically the pandemic stimulus money -- https://bityl.co/C00I -- which as everyone knows, gov't expenditures is part of total GDP.
Again, GDP did not shrink.
2020Q1 $21,481.4B
2020Q2 $19,477.4
2020Q3 $21,138.6
2020Q4 $21,477.6
2021Q1 $22,038.2
2021Q2 $22,741.0
2021Q3 $23,202.3
2021Q4 $24,002.8
2022Q1 $24,382.7
Repeat after me: GDP did not shrink.
What shrunk is real GDP. As Kevin constantly reminds, most economic numbers have to be inflation-adjusted to be meaningful.
Real GDP in the eye of the beholder. My view is it went up, probably more than expected in 2020-21.
That depends on what you're trying to ascertain. The nominal GDP shows that the economy is still growing, quite robustly, as a matter of fact.
That PCE deflated nominal GDP suggests that we need to focus on the causes of price inflation, not whether or not the economy is slowing.
The nominal GDP shows that the economy is still growing, quite robustly, as a matter of fact.
I think it's likely, as Kevin indicates, that the underlying economic trends suggest output will be expanding in the months ahead. But, not sure how you get "growing quite robustly" out of this single quarter's report, in that the amounts being indicated, in fact, describe shrinking production of goods and services (it's just that more dollars are required to purchase those goods and services, hence the nominal topline number is larger). Or am I missing something? (Certainly a possibility!).
PS: For the record I'm semi-cheering on the arrival of recession. Sure, a soft landing—just enough to be consistent with benign inflation—would be the optimal scenario for the next 18 months or so. But I do fear something a bit more severe—a actual recession in the formal sense, ie, multiple quarters of GDP contraction—is a strong possibility. And it that happens, far better for Democrats (and therefore America) for it to arrive ASAP, so that there's a fighting chance growth will have resumed by 2024.
This substack by Noah Smith explains in more detail what my comment above says. Hope you'll take the time to read it and update your post. Imports are not a part of GDP. What you wrote is incorrect. https://noahpinion.substack.com/p/imports-do-not-subtract-from-gdp?r=7gb7a&s=r&utm_campaign=post&utm_medium=email
What you wrote is correct. I was trying to say the same thing in a different way.
GDP is a trash compactor data. Lazy in construction and still revised back to 1929. That doesn't even matter. That even doesn't matter.
The real reason why even try??? Abolish it.