Real GDP Continues Growing
New Slides for COVID-19 Crisis

Imports Are Not Negative!

The BEA released the first estimate of 2019 GDP yesterday.  The headline number is fourth quarter real GDP growth, which came in at 2.1 percent.  This made the estimate of real GDP growth for all of 2019 just 2.3 percent.  Now, 2.3 is not terrible, but given the low low low unemployment rate of 3.5%, it feels like GDP should be stronger.  Keep in mind, the 50-year average growth rate of real GDP is about 2.8 percent.

The graph below shows quarterly real GDP growth for the past 5 years.


There is a statement in the official BEA release that got me worked up.  It's not technically wrong, but it is certainly misleading.  The last paragraph on the first page ends with this sentence: 

Imports, which are a subtraction in the calculation of GDP, decreased...

Sentences like this support the general misunderstanding of how imports affect GDP data and also the misunderstanding of the way imports affect our economy.  Of course, imports DO enter the GDP accounting equation negatively: Y = C + I + G + (X - M), but then they also affect other components of GDP.  So the effect nets out "in the calculation of GDP!"  As I told my class this week, when we import a $30K Toyota from Japan, imports increase but so does consumption.  

I think this wording irritates me because it gives fodder to the populist-isolationist view that imports are bad for our economy.  By the way, there is a really nice Page One article from the St. Louis Fed on this very topic.