US Gross Domestic Product grew at a 2.1% annual rate during the fourth quarter of 2019, according to the Commerce Department’s preliminary estimate released January 30. Falling imports, though, accounted for two-thirds of the increase, accompanied by slowing consumption. Investment and inventories also fell. Domestic economic activity weakened overall, and the improvement in the trade balance – which by convention figures into the calculation of GDP – reflects retrenchment by retailers and consumers. In sum, the report is much weaker than it looks.
The chart below shows the contribution to annualized change in GDP by major category. Consumption, the mainstay of the Trump recovery, contributed just 1% to annualized GDP growth, compared to 2% in the third quarter of 2019 and 3% in the second quarter. Falling investment cut into growth, deducting a bit over 1%. The biggest contributor by far to GDP growth was falling imports. That isn’t a good sign.
The chart below shows net imports vs. consumption. The relationship between the two measurements I clear: The more Americans consume, the more they import. The “improvement” in net imports reflects slower growth in consumption.
The Commerce Department publishes a separate calculation of economic growth that excludes the impact of net exports, or final sales to domestic purchasers. By this measure, the 4th quarter was the weakest in the past four years.