What’s Causing This Dip In GDP?
What’s causing this dip in GDP? Inflation hasn’t gone anywhere, and as Byron York pointed out, Washington Examiner, the stock market in the month of April dropped 1200 points, not 12,012.
That’s not the end of days. Maybe this data isn’t as bad as we think, but maybe this data is telling us something that we don’t quite understand. I’m not interested in the politics of the thing. I’m interested in understanding the thing. Doctor Matt Will joins us economist at the University of Indianapolis. Let’s start with the basics you see GDP, gross domestic product down .3%. First a definition of what GDP is and then economist this concern you.
OK, Well, there’s so much here and let’s put that in market drop or not drop off to the side because that’s a bigger topic by by itself. But GDP is simply a a measurement of how much the economy is growing. That’s it. Now it’s a formula developed back in the 40s. So it’s not a great measurement, but it’s the best one we’ve got. And so that’s what we look at. We also, if we talk GDP, we often also must talk the PMI report that came out today as well. So there’s two parts to this. So GDP, how much are we growing or not? And according to this, we’re not. For the first quarter of this year, the GDP dropped by 0.3% and that is not a recession. You got to have two quarters for that. But it’s a drop and it’s below expectations. And people were kind of shocked. I’m not shocked, but it is down. So, let’s discuss why it’s down. Because some people are politically speaking, said, “OHH, it’s because of the tariffs.” And I look at this and say these tariff conversations. What happens on April, this (GDP report) is the first quarter… So, I think the tariffs have everything to do with it because in March, businesses knew they were coming. They were spoken about. So, they began what we call front running the tariffs, front running for if people don’t understand what I mean, it’s kind of like, you know what, you know where hurricanes come into your house, you’ve got some warning in advance. So, you get in your car, and you drive away. So, people, businesses knew this was coming and so they reacted. How did they react by upping exports incredibly. I mean, if you look at the amount of exports year over year, they were exports were up 4.8% versus -.6 last year. This is a massive swing. And imports are a drag on GDP Now it’s it’s a little complicated, Tony, because while imports reduce our GDP, when there are imports we have an increase in inventories, which is good. We have an increase in business investment, which is good. And we usually have an increase in consumer spending. So we have this huge front running occur. That totally messed up the numbers. And, you know, I would call it an anomaly. I don’t expect this to occur in the next quarter because it was all the companies trying to rush to get their goods imported before the tariffs hit.
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