I apologize for pointing this out, but I believe that there is an analytic error in your logic concerning the reason behind the apparent fall in first-quarter GDP.
You wrote: "The reason GDP is down is that imports were highly elevated in Q1." This is not correct.
TLDR: Imports do not reduce GDP. Rather, they are simply not counted at all.
Imports are subtracted from the final GDP calculation because they are already counted in consumption, investment, government purchases, or exports.* If imports rise from one quarter to the next, then either consumption or investment will rise by the exact same amount, leaving total output unchanged.
In other words, a surge of imports in order to beat tariffs will have no direct impact on GDP. Investment will rise as those imports go into business inventories. That rise will then be subtracted out in imports. No direct change.
In this particular case, the figures on private inventories imply that the import surges have been sold. That is, they went directly to consumers. This does not quite seem to fit the "stocking up" narrative. (These figures from the Atlanta Fed do not quite jibe with the ones Furman reports. I think that is because they are results from a forecast rather than direct data. I don't know, however.)
Investment growth is high enough that even if you attributed half of the import rise to imports of capital goods (or unsold inventories), it would still come out positive. On the other hand, if you did the same to consumption, you are going to get a strongly negative number. So ...
A more reasonable conclusion would be that GDP declined because people bought fewer American-made goods.** That is consistent with people switching their consumption away from domestic goods to imports that they expect will be much more expensive in the near future.
The thing is, the evidence here is not direct! We don't really know if the decline in domestic value-added occured in exports, or in consumption, or in investment. I think it is reasonable to /indirectly/ pin the blame on a fall in the consumption of domestic goods and services, but that is an indirect conclusion.
It is, of course, quite possible that I made a mistake here! And I hope you don't mind me poking my head here into your Substack to make a minor quibble. The analytical error, however, is one that plagues my MBA students, so I'm a bit attuned to it.
* Imports can also show up in G and X. The government buys some imported goods, or domestic goods that have imported inputs. Meanwhile, American exports often required imported imports to make. But in this case the simplification seems reasonable.
** Technically, the value-added in the United States embodied in good sold in the United States decreased. But that's a mouthful!
Frankly, it's pretty fucking bleak if you have any intelligence at all. And because of the 30 day bullwhips it absolutely will only get worse before it gets better. We'll be in a recession by the end of June it seems. And the question is if we'll be in a depression by August.
Very clear discussion of the recent, but not current, data, GEM. As you note, reporting-lags might mean that current data is worse.
Apropos of Strength in *Numbers*, I hope we continue to get reliable quantitative economic reports. I wonder whether the BEA will soon be filled with Maga-conomists who cook the data to please Trump or shut down BEA altogether. There will continue to be reliable NGO sources even if BEA is destroyed, but it will be more challenging to figure out what's going on.
Eliott, I would not fib about such an important issue! :-) I just keep thinking about that 1.5% plurality and seeing so many stories where egg prices were given as the rationale for bringing Trump back.
it looks like MAGA - Morons are Governing America.
It was completely avoidable and it is the result of Trump shooting us all in the foot with stupid, unnecessary tariffs, ruinous instability and uncertainty, blatant corruption, and soon enough a budget busting tax cut.
I apologize for pointing this out, but I believe that there is an analytic error in your logic concerning the reason behind the apparent fall in first-quarter GDP.
You wrote: "The reason GDP is down is that imports were highly elevated in Q1." This is not correct.
TLDR: Imports do not reduce GDP. Rather, they are simply not counted at all.
Imports are subtracted from the final GDP calculation because they are already counted in consumption, investment, government purchases, or exports.* If imports rise from one quarter to the next, then either consumption or investment will rise by the exact same amount, leaving total output unchanged.
In other words, a surge of imports in order to beat tariffs will have no direct impact on GDP. Investment will rise as those imports go into business inventories. That rise will then be subtracted out in imports. No direct change.
In this particular case, the figures on private inventories imply that the import surges have been sold. That is, they went directly to consumers. This does not quite seem to fit the "stocking up" narrative. (These figures from the Atlanta Fed do not quite jibe with the ones Furman reports. I think that is because they are results from a forecast rather than direct data. I don't know, however.)
Investment growth is high enough that even if you attributed half of the import rise to imports of capital goods (or unsold inventories), it would still come out positive. On the other hand, if you did the same to consumption, you are going to get a strongly negative number. So ...
A more reasonable conclusion would be that GDP declined because people bought fewer American-made goods.** That is consistent with people switching their consumption away from domestic goods to imports that they expect will be much more expensive in the near future.
The thing is, the evidence here is not direct! We don't really know if the decline in domestic value-added occured in exports, or in consumption, or in investment. I think it is reasonable to /indirectly/ pin the blame on a fall in the consumption of domestic goods and services, but that is an indirect conclusion.
It is, of course, quite possible that I made a mistake here! And I hope you don't mind me poking my head here into your Substack to make a minor quibble. The analytical error, however, is one that plagues my MBA students, so I'm a bit attuned to it.
* Imports can also show up in G and X. The government buys some imported goods, or domestic goods that have imported inputs. Meanwhile, American exports often required imported imports to make. But in this case the simplification seems reasonable.
** Technically, the value-added in the United States embodied in good sold in the United States decreased. But that's a mouthful!
Any bets on how long the Biden economy will be controlling things?
Thank you for your reporting. Somehow it makes me feel less panicked in spite of knowing the train is going to hit.
Thanks for a report even I can understand! The urgent points were so clear.
Thanks for the feedback Sharon!
The Apollo Management Group posted a bevy of charts on various economic indicators a couple of days ago.
https://www.apolloacademy.com/how-are-us-consumers-and-firms-responding-to-tariffs/
Frankly, it's pretty fucking bleak if you have any intelligence at all. And because of the 30 day bullwhips it absolutely will only get worse before it gets better. We'll be in a recession by the end of June it seems. And the question is if we'll be in a depression by August.
"Things will get worse before they get better." I am hoping we don't get stuck in the "worse" area!
Amen. Things will change, but how long that will take is an unknown. If we don’t submit, the Tyrant can’t operate.
Very clear discussion of the recent, but not current, data, GEM. As you note, reporting-lags might mean that current data is worse.
Apropos of Strength in *Numbers*, I hope we continue to get reliable quantitative economic reports. I wonder whether the BEA will soon be filled with Maga-conomists who cook the data to please Trump or shut down BEA altogether. There will continue to be reliable NGO sources even if BEA is destroyed, but it will be more challenging to figure out what's going on.
Anyway, KUTGW.
"...might mean that current data ARE worse..." (Éditorial berated me, so I fixed it.(
At least Trump has made eggs so cheap that the stores are giving them away as loss leaders! :-)
Is that so? (If so, brb...)
Eliott, I would not fib about such an important issue! :-) I just keep thinking about that 1.5% plurality and seeing so many stories where egg prices were given as the rationale for bringing Trump back.
Most of them anyway. There are two trump eggs that are held captive by putin
"What a "Trump recession" could look like"
it looks like MAGA - Morons are Governing America.
It was completely avoidable and it is the result of Trump shooting us all in the foot with stupid, unnecessary tariffs, ruinous instability and uncertainty, blatant corruption, and soon enough a budget busting tax cut.
FUCK every single one of his voters.
You can add to that people who could not bestir themselves to vote for Harris or who voted third party as a "protest."
Here’s hoping even they will realize the abuse and come around. But sadly, I can’t wait for them, so must move on.
They're in, don't worry.