I know it’s wonky, but I think you should explain more clearly why it makes sense in this case to look beneath the trade balance and the change in inventories. The GDP calculation is, in the end, an attempt to measure domestic production. A surge in imports shouldn’t affect that calculation in principle; it should show up mostly as an increase in inventories. Since those are hard to measure, it is quite likely that the drop in real GDP reflects imperfect alignment between two variables (imports and inventories) that are both hard to measure.
That’s precisely the explanation I would have given, and highly efficient too. It’s also been shown that because they’re hard to measure, measures that leave off trade balance and inventories do a better job of predicting where GDP is headed, meaning they help pull signal from noise.
To get even wonkier, the inventory measure in GDP growth is one of the noisiest because it is a change in a change: if inventories increase $1bn in Q1 and $1.5bn in Q2, $0.5bn (the change in the change) is what gets recorded.
Yes it is a subtraction but at the same time that someone imports, say, t-shirts I would think their inventory or sales of t-shirts must automatically go up by the same amount, canceling out the negative number. On the other hand it seems quite a coincidence that imports rose so strongly while GDP declined. Possibly retailers switched from U.S. to Chinese t-shirts, which would cause U.S. manufacturers to reduce production.
Does Jared Bernstein understand this? In his response to you it’s not clear that he does - which seems impossible. The BEA, as Noah Smith has pointed out repeatedly, continues to get this wrong in their releases.
Perhaps the BEA could follow up on Jared's suggestion and report growth in domestically-produced consumption, investment, and government, that is, the published C, I, G, and X net of imports.
Yes I'm sure he does. I think he's referring to the mechanical contributions-to-growth calculations that the BEA does, which multiply the share of imports times it's growth rate to get its contributions to quarterly growth. In a mechanical but unenlightening sense, imports subtract from growth.
Great insights as always. Copy editing, not so much. “Continuing claims” should be ‘does’ because the phrase itself is singular, so Dr. Bernstein’s note of grammatical disagreement was itself not correct. Great economist, though!
The original quoted phrase was “continuing UI claims”. To be clear, it should have been in quotation marks by the original author, making crystal clear that it is one thing (at least in that author’s view). Also, it does sound awkward; as we remember from middle school, lots of English syntax sounds funny when read aloud. You may continue to be a “typo machine” as long as you continue to share your thoughtful insights into the economy.
Can you explain the implications of the numbers to me and others their significance in real dollar terms? Something is down .2%. Seems like a really small number. So why should I take notice? Your posts are great. I’m learning a lot. So thanks.
Great question. It is a small number, but it should be viewed in comparison to recent quarterly growth rates, which have generally been around 2%. In that regard, this is a big deceleration of growth. BUT, it's one quarter and if you get into the guts of the report and take out some of the noise factors, you see that the underlying pace of growth is still well above that -0.2%, as I pointed out.
As Noah Smith has explained, an increase in Net exports in GDP does not reduce GDP since it is simply offsetting the increases imported Consumption and Investment in the GDP calculation
I read yesterday that 12% of outstanding credit card balances are 90+ days delinquent. I think lots of consumers aren't doing as well as the sentiment number indicates. It gives me no pleasure to say that.
As I'm sure Jared knows, GDP is a measure of U.S. production. Unless a change in imports affects U.S. production it cannot affect GDP. So I don't understand the comment that the slight contraction is due to an increase imports.
I dunno. I've seen this argument and I get it, but here's the way BEA, the people who collect and deliver the data put it in their release: "The decrease in real GDP in the first quarter primarily reflected an increase in imports, which are a subtraction in the calculation of GDP."
That's just factually true and so seems confusing to say otherwise. I did try to make your point in the phrase about netting out foreign production, though perhaps that obfuscates as well.
Another really insightful set of comments i just dont find elsewhere. Thank you!!
I know it’s wonky, but I think you should explain more clearly why it makes sense in this case to look beneath the trade balance and the change in inventories. The GDP calculation is, in the end, an attempt to measure domestic production. A surge in imports shouldn’t affect that calculation in principle; it should show up mostly as an increase in inventories. Since those are hard to measure, it is quite likely that the drop in real GDP reflects imperfect alignment between two variables (imports and inventories) that are both hard to measure.
That’s precisely the explanation I would have given, and highly efficient too. It’s also been shown that because they’re hard to measure, measures that leave off trade balance and inventories do a better job of predicting where GDP is headed, meaning they help pull signal from noise.
To get even wonkier, the inventory measure in GDP growth is one of the noisiest because it is a change in a change: if inventories increase $1bn in Q1 and $1.5bn in Q2, $0.5bn (the change in the change) is what gets recorded.
Yes it is a subtraction but at the same time that someone imports, say, t-shirts I would think their inventory or sales of t-shirts must automatically go up by the same amount, canceling out the negative number. On the other hand it seems quite a coincidence that imports rose so strongly while GDP declined. Possibly retailers switched from U.S. to Chinese t-shirts, which would cause U.S. manufacturers to reduce production.
Does Jared Bernstein understand this? In his response to you it’s not clear that he does - which seems impossible. The BEA, as Noah Smith has pointed out repeatedly, continues to get this wrong in their releases.
Perhaps the BEA could follow up on Jared's suggestion and report growth in domestically-produced consumption, investment, and government, that is, the published C, I, G, and X net of imports.
Yes I'm sure he does. I think he's referring to the mechanical contributions-to-growth calculations that the BEA does, which multiply the share of imports times it's growth rate to get its contributions to quarterly growth. In a mechanical but unenlightening sense, imports subtract from growth.
Great insights as always. Copy editing, not so much. “Continuing claims” should be ‘does’ because the phrase itself is singular, so Dr. Bernstein’s note of grammatical disagreement was itself not correct. Great economist, though!
I'd like a 2nd opinion on that. "Continue claims is rising." Just sounds wrong to me, but as you say, I'm a typo machine.
The original quoted phrase was “continuing UI claims”. To be clear, it should have been in quotation marks by the original author, making crystal clear that it is one thing (at least in that author’s view). Also, it does sound awkward; as we remember from middle school, lots of English syntax sounds funny when read aloud. You may continue to be a “typo machine” as long as you continue to share your thoughtful insights into the economy.
Right. I read for the data and interpretations. Typos are inevitable, even with Autocarrot on the job.
Proves that I'm not using AI!
Can you explain the implications of the numbers to me and others their significance in real dollar terms? Something is down .2%. Seems like a really small number. So why should I take notice? Your posts are great. I’m learning a lot. So thanks.
Great question. It is a small number, but it should be viewed in comparison to recent quarterly growth rates, which have generally been around 2%. In that regard, this is a big deceleration of growth. BUT, it's one quarter and if you get into the guts of the report and take out some of the noise factors, you see that the underlying pace of growth is still well above that -0.2%, as I pointed out.
As Noah Smith has explained, an increase in Net exports in GDP does not reduce GDP since it is simply offsetting the increases imported Consumption and Investment in the GDP calculation
I read yesterday that 12% of outstanding credit card balances are 90+ days delinquent. I think lots of consumers aren't doing as well as the sentiment number indicates. It gives me no pleasure to say that.
As I'm sure Jared knows, GDP is a measure of U.S. production. Unless a change in imports affects U.S. production it cannot affect GDP. So I don't understand the comment that the slight contraction is due to an increase imports.
I dunno. I've seen this argument and I get it, but here's the way BEA, the people who collect and deliver the data put it in their release: "The decrease in real GDP in the first quarter primarily reflected an increase in imports, which are a subtraction in the calculation of GDP."
That's just factually true and so seems confusing to say otherwise. I did try to make your point in the phrase about netting out foreign production, though perhaps that obfuscates as well.