Falling Imports versus Falling Exports (GDP = -2.38%)

I noted earlier that the oddity of imports versus exports calculation would produce a positive contribution to GDP. Let’s look at the details of this, and find a way to understand what this means.First, off conceptualize the difference between what imports and exports are. At the most basic level, Imports represent our consumption of overseas production, i.e., We buy what they make.

Exports are where overseas consumers purchase our production, i.e., They buy what we make.

What were the specifics of the GDP data regarding import/export?

-Real imports of goods and services decreased 15.1%

-Real exports of goods and services decreased 7.0%

So in Q2, both consumption by us of overseas goods and services and by them of US made goods and serivces declined significantly.

The Differential between imports and exports — who dropped fastest — was the key to this quarter’s GDP data.

According to Bloomberg, Decreasing Exports subtracted 0.76% from GDP. At the same time, falling Imports added 2.14%.  Net contribution of the fact that Imports are free falling twice as fast as Exports are = 1.38%.

If they were both falling at the same rate — if Europe and Asia’s consumers were hurting as much as ours –  GDP would have been -2.38%.

If it seems weird to you that the ratio of domestic and overseas shrinking economies and their reduced consumption somehow turned into a positive GDP contributor, well, welcome to the wonderful world of government statistics.

Originally published at The Big Picture and reproduced here with the author’s permission.

One Response to "Falling Imports versus Falling Exports (GDP = -2.38%)"

  1. Guest   August 1, 2009 at 6:55 pm

    You provide the clearest, short-and-to-the-point explanations I have ever encoutered. Will you marry me?