A bunch of economic news was dropped today. You can assume that the ones unfavorable to Trump will be trumpeted by the media is as misleading a way as possible. Our real (post inflation) gross domestic production supposedly dipped by .3% in the first quarter. Other than in regard to tariffs, it is pretty unlikely that the new President’s policies had much to do with the economy during the first two and a half months in office. In regard to tariffs, GDP kind of bizarrely treats imports as a subtraction and we had a lot of imports as businesses tried to front-run the Trump tariff barrage. And most importantly, the core part of GDP actually did pretty well. (BEA Release)
Consumer and business spending was actually up and business investment was up, although some of that building up inventories, again likely related to fear of tariff hikes. Government spending was down, that is a real positive. On the negative side, prices rose pretty significantly at around 3.5%. A good analysis of the GDP numbers can be found here. (FT Post) According to this group, core GDP growth was good, at 3%. But those price numbers bear watching as they suggest inflation may indeed resurge.
ADP, which handles payrolls for many large and medium-sized employers, reported weak job growth in April, only 62,000 in the private sector. Health services, education and business and professional services all saw job declines. Wages for people remaining at their jobs rose 4.5%, while pay for those changing jobs increased 6.9%. Those are somewhat inflationary numbers. (ZH Post)
Then the Bureau for Economic Analysis reported on personal income growth and spending for March. Personal income rose month-over-month by .5%, while personal spending grew .7%. This meant Americans were saving less. A critical factor for consumers is to feel like their after-tax income is growing faster than inflation. Consumers spent a lot more on cars, likely trying to get ahead of tariff-related price increases, and a lot less on gasoline and other energy costs. The year-over-year price increase was around 2.3% and it was basically unchanged from the prior month. So right now at least, personal income is growing faster than prices. (BEA Release)
I don’t think imports are a subtraction. They are not included in GDP since they are not part of what our economy produced. But in calculating GDP, they start with numbers that include imports (sales numbers, if memory serves). So then they have to subtract imports from the total so as to get a number that does not include imports.
A bit more on my earlier comment. The treatment of imports is discussed here:
https://fredblog.stlouisfed.org/2018/09/do-imports-subtract-from-gdp/
They say that “GDP measures domestic production, so imports (foreign production) should have no impact on GDP” and “Some of this spending (which is counted as C, I, and G) is spent on imported goods. As such, the value of imports must be subtracted to ensure that only spending on domestic goods is measured in GDP”.
The BEA release shows that there was a big increase in “investment” and says that “The largest contributor to the increase in investment was private inventory investment”. So if wholesalers stocked up on imported goods, that goosed the numbers for both investment and imports. But in the end, those two increases cancel out.
Yeah, technically net exports get added, but if net exports are negative, and they have been for a long time, then you are adding a negative number. Not sure how imported goods that end up in inventory are counted, I am pretty sure BEA avoids double counting, but I will have to check.
Imported goods that end up in inventory should have no effect on GDP. They are included in the increase in inventory, then get subtracted out when imports are subtracted from the total.
That makes perfect sense in doing the calculation, but makes it hard to interpret the results since we do not know the extent to which the increase in inventory was due to accumulating imports in inventory. And all sorts of people who should know better mindlessly repeat “GDP dropped due to increased imports”. The only way that is true is if the increase in imports suppressed domestic sales of domestic goods.
I hope I am not wearing out my welcome, but I now have got a bee in my bonnet about this. There is a detailed breakdown of the GDP numbers here:
https://fred.stlouisfed.org/release/tables?rid=53&eid=14897#snid=14943
It is a lot to digest. Note that they are annualized, i.e., 4 times the actual numbers for the quarter. I don’t know if they are seasonally adjusted.
Non-farm inventory growth went from $4 B in Q4 to $177B in Q1, so an increase of $173 B. Imports of goods went from $3289 B to $3665 B, so an increase of $376 B. That is more than double the inventory growth, so most of the increase in imports was not due to building up inventory.