S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable. HONEY, I SHRUNK THE ECONOMY! Last week, there were a lot of headlines about the U.S. economy after the Commerce Department shared information showing the U.S. economic expansion stuttered in the first quarter of this year. From January to March, the U.S. economy contracted, -0.3 percent annualized, as measured by gross domestic product (GDP) adjusted for inflation. The reasons for an economic contraction weren’t obvious. Many companies were doing well, and business investment was solid. Consumer spending slowed but remained healthy. Government spending dropped a bit, but the fly in the economic ointment was imports from other countries. “An enormous surge in imports was the big outlier in this GDP report. Normally, big increases in imports rarely coincide with outright declines in headline GDP because stronger imports usually mean more spending, not less,” reported a source cited by Megan Leonhardt and Matt Peterson of Barron’s. Why are imports part of U.S. productivity? You may be scratching your head, wondering why imports – goods produced in other countries – are included when determining the value of all goods and services produced in the United States. The short answer is: They’re not. Broadly, U.S. GDP is measured by adding up: - Personal consumption expenditures (consumer spending)
- Investment (business expenditures, household purchases of homes)
- Government spending (mandatory and discretionary)
- Exports (goods made in the U.S. and shipped elsewhere)
The final step is subtracting imports, which are goods that were made elsewhere. Imports are deducted because they’re in consumption, investment, and government spending numbers. To understand what was produced in the United States, imports must be subtracted. The St. Louis Federal Reserve offered an example of how that works. “…if $10,000 in imported parts are used in the production of a car in a U.S. factory (an “American” car) and the car is sold in the United States for $30,000, then the $30,000 counts as personal consumption expenditures; but $10,000 is subtracted to account for the value of the imported parts, so the effect on U.S. GDP is $20,000.” The GDP report raised some interesting questions The report about U.S. economic performance raised some questions that have yet to be answered. Why didn’t U.S. GDP reflect the purchase of imports? What happened to the imported goods? It’s possible the surge in imports was overestimated. It’s also possible spending and investment were underestimated, opined the source cited by Leonhardt and Peterson. We may have answers over the next two months. Last week’s report was the first estimate of economic growth, and it may have included data that was incomplete or will be updated. We’ll see two more estimates before the end of June. For now, it may be enough to know that first quarter GDP appears to reflect “the anticipated impact of tariffs rather than an actual downturn,” as Randall Forsyth of Barron’s reported. Weekly Focus – Think About It “It's funny: I always imagined when I was a kid that adults had some kind of inner toolbox full of shiny tools: the saw of discernment, the hammer of wisdom, the sandpaper of patience. But then when I grew up I found that life handed you these rusty bent old tools - friendships, prayer, conscience, honesty - and said 'do the best you can with these, they will have to do'. And mostly, against all odds, they do.” – Anne Lamott, Author | 
