Questioning Q4 GDP

Mike Mandel has a new post which might make you a bit uncomfortable. He suggests that the US has been miscalculating its trade gap in a manner which leads to overstating GDP growth.

Now, if you believe the official  statistics, it drives your entire interpretation of the past ten years.  If nonoil imports have not grown as a share of GDP, and if the real nonoil trade gap has not widened much, then the 33% decline in manufacturing jobs since 2000 is mainly due to a combination of rising productivity and a short-run domestic demand shortfall.  In other words, if you believe the official statistics, we have no competitiveness problem and no trade problem. This is the assumption that drove Obama’s economic policy up to this point (yes, yes, I know there are all sorts of caveats here. But trust me. If you have an economy where the real trade gap is not increasing much and the share of imports is not rising,  straightforward calculations give you a small impact from trade).

However, if you accept that the impact of imports on the U.S. economy has increased over the past ten years, then the official  GDP stats are by definition missing  the boat when it comes to trade.  They are underestimating both the nominal impact of growing imports, and the real impact of increasing trade deficits (I’ve written about this many times in the past, but I’m about to write a post that summarizes what we know).

Take a look at these graphs from Jake at (click for a larger image).

As you can see, both net exports and consumer expenditures had a big impact on Q4 GDP, but as Mandel points out this isn’t consistent with historical experience. When a contraction in imported goods occurs it is generally the result of a contraction in consumer spending. That clearly didn’t happen according to the official statistics.

Any ideas as to what might explain this apparent contradiction?


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