Poking fun at GDP (and the chart-foulers)

Tariffs have already caused a recession!!!

• GDP forecast is pure doom

• . . . because GDP is a silly metric, in a lot of ways (but it’s our silly metric)

• tariffs did technically cause a recession tho

• but you know what happens after front-running?

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It’s a Friday fun day, but there’s been a paucity of fun charts this week, for whatever reason.

Poking fun at GDP (and the chart-foulers)

I would, however, take a moment to poke some fun at the measure known as GDP.¹

Some of you may have seen the GDPNow real GDP estimate (and the dramatic decline):

Atlanta Fed

Sound the alarm! We’re in a full-on recession! GDP drops to -2.5%!

Arghh, tariffs are causing the stock market to collapse! Nasdaq, full of technology companies famously exposed to tariffs(?), is in a total selloff!² It’s the policy uncertainty!!

Now, grown-up talk for a moment—and I promise I will return to the GDPNow chart-cession—whatever the manifold structural weaknesses of the current setup, tariffs are the least of our worries. A one-time step-up in prices that make “more with less” more difficult, at least in the near-term? Yes, that shoe definitely fits. A kill shot to our “robust” economy? Lol, no.

Plus, as best as I can tell, nothing bad has actually happened (yet), other than a massive sell-off in what lots of people were saying was an extremely expensive stock market (at least, until their politics-addled brains found a tariffs toy to froth about).

Labor market breadth and softness? Definitely still problems, but too soon to tell if they’re worsening problems (and again, have little or nothing to do with tariffs).

But what about the GDP forecast? It was fine, until suddenly, was it not?

Tariffs did actually cause a recession (really)

So yeah, it is true, in one sense, at least, that tariffs have “caused a recession.”

But you said . . .

No, I know, but remember, this a post clowning on the measure known as GDP.

Go on . . .

You see, there was one big component that shifted GDP from positive to negative.

Just one?

Just one.

Which one?

It’s the “trade deficit,” or the difference between imports and exports:

“Net-exports” took a massive header in the latest read.

If the trade deficit is really bad, does that mean the economy is really bad?

It depends, I suppose, but either way, the fact is that GDP rewards exports as “growth” and imports as “not-growth.” It’s very Trumpian in that regard. But what that means is that if you import a lot more than you export, you are technically not-growing. It’s a drag on GDP.

GDP is imperfect, but it is what it is.

Anyways, what do you think happens if you suddenly import a whole lot of stuff because you’re worried that tariffs are about to make everything more expensive?

Well, you trigger a GDPNow “recession,” that’s what.

And yes, that’s exactly what happened.

BEA

The trade-deficit began to take off like a rocketship back in December (before Trump was officially president).

There’s your recession right there.

And it’s tariffs, or front-running the fear of tariffs, more accurately, that caused it. Damn the man!

Front-running is usually followed by . . .

Just so there’s no doubt, it was a surge an imports (not a drop in exports) that caused the deficit to blow out wide.

Goods-imports especially rose pretty dramatically:

Total imports jumped 10% mom from December to January (led by a huge step up in goods imports).

So, it’s pretty clear that front-running tariffs caused a substantial surge in the trade-deficit, which itself caused a big downward move to GDP.³

Catch that? We imported a ton of stuff, and that = recession. And when we inevitably import less stuff to correct for the stockpiles, we will un-recess. You know what else happens when you panic-buy imports? Prices go up, too. And you know what happens when you post-panic don’t-buy lots of imports? Prices will go down.

Look, bad things may yet happen, but in all events, ignore the emotional teeth-gnashers because they will make you (and everyone else) dumber.

And remember, GDP is a silly metric, in a lot of ways.

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Previously, on Random Walk

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1. If some bad-faith, chart-fouling, hyper-partisan catastrophists get harmed in the crossfire, well, it wasn’t my intention. Ignore the slop. Be safe out there.

2. You might be able to come up with a reason of why tariffs would effect software companies, like Palantir, but most of the punditry doesn’t even try. They just point and stammer.

3. A more interesting question is why the trade deficit appears to have reset lower after the pandemic:

BEA

The deficit ran steadily ~($50B), but appeared to settle around ~($75B) in 2023.

Idk why, just never noticed that before.