Copy of Sentinel V22 #32-Don’t Stress Over the GDP!
- Steve Dittmer
- Jul 22
- 3 min read
Even the BEA Agrees Something Seems Wrong with The Numbers
Steve Dittmer | AFF Sentinel
Colorado Springs, CO
Originally sent to subscribers 04/30/25
Usually, digging into the details underneath the topline numbers like GDP support the topline number.
Not this time. The details under this week’s GDP number don’t seem to agree with the published result. The topline number said the March GDP was -0.3 percent. But much of the mathematical cause of the negativity stemmed from planning by American businesses. Anticipating the announcement of tariffs in early April, they imported and stockpiled lots of the things they figured would be tariffed. So, by the formula used to compute the GDP, a calculation that would have yielded a positive figure over 3 percent for the quarter, instead swung it to a negative, economist Larry Kudlow said.
Dig into the numbers and they range from good, to great to shockingly good. Then, there was a major figure of $330 billion in imports but showed inventories only increasing $140 billion. Kudlow couldn’t figure out where the $193 billion difference went. Kudlow and Director of the National Economic Council Kevin Hassett discussed the disappearing figure. Hassett’s team had quizzed the Bureau of Economic Analysis (BEA) about the issue and BEA admitted it looked like something was wrong with the figures. Expect more adjustments later. Kudlow thinks the pencil pushers at the BEA subtracted the $193 billion but he decided to add it to GDP, which makes it a positive 3.2 percent for the quarter.
All that angst in the markets Wednesday may just have been due to a math error. Hassett said there was even a little footnote at the back of the GDP report addressing the apparent data discrepancy.
Breitbart economist John Carney dug into the data. Personal Consumption Expenditures (PCE) grew at a 1.8 percent clip for the quarter, finishing at a 0.7 mark for March. Consumers were still spending. Durable goods (3.2 percent), services (0.6 percent) and real disposable income (0.5 percent) all rose in March.
Inflation news was also good. The Fed’s key indicator, the PCE Index and the core PCE index (excluding food and energy) were both flat -- zero -- for March, the best reading in five years. Year over year, the PCE Index was 2.3 percent and the core came in at 2.6 percent.
Those indexes are figured without imports included. Carney pointed out that businesses built up those inventories anticipating consumer demand would continue, not anticipating a recession.
“Underneath the noise, the fundamentals are strong: real demand is up, incomes are growing, prices are stable…” Carney summarized. With the pace of inflation slowing and the economic growing, the Fed needs to re-look at their federal funds rate.
The government uses a formula for calculating GDP — consumption + investment + government spending + net exports -- that makes imports a drag on growth.
A surge in imports deepens the negative net export figure, subtracting from GDP even if those goods are headed for eager American consumers. The result: strong domestic demand or businesses rushing to import goods ahead of new tariffs can translate into weaker GDP growth, Carney said.
Note that the GDP formula includes government spending, which has been trending down, yet without the big import surge, GDP was still up over three percent. Also, note that the employment numbers have stayed strong, even with government hiring also trending down.
Private sector investment surged at the start of the year, likely also reflecting businesses front-running anticipated import duties. Overall, investment rose 21.9 percent, driven by a 22.5 percent increase in equipment investment. Hassett said the highest previous figure he could find was four percent in a 1970s recession. The first quarter figures certainly do not appear to presage any recession.
Anticipation of the reconciliation bill with tax cuts and expensed equipment and factories dating back to Jan. 20 also likely contributed to strong business investment figures, Kudlow said. So, also, the prospect of the corporate tax rate going from 21 to 15 percent.
Kudlow has been hammering at the gap between inflation at maybe 2.5 percent and the federal funds rate at 4.5 as out of sync. Fed Chairman Powell is one who wants to prepare markets for Fed moves, so it’s looking more likely that he sets the stage in May for some interest rate cuts by June.
Hassett concluded with a report on the progress of the “one, big, beautiful” reconciliation bill from the leadership meetings of Congress and the Administration. He said it was as positive as any tax meeting he’s been to, with broad agreement on the important issues. “Fast forward” is the pace. Memorial Day is probably too soon but Hassett is thinking June or July 4th at the latest for the bill to be passed.
Next time: What is China facing?
Our address: Agribusiness Freedom Foundation, P.O. Box 88179, Colorado Springs, CO. 80908.
To support the work of AFF, you can contribute with any major credit cards here:
Or,
If you wish to use your Paypal acct. click below: