GDP goes negative

Rob Armstrong (0:06)

Pushkin. Aiden, do you know how I'm feeling?

Aiden Reiter (0:11)

How are you feeling?

Rob Armstrong (0:12)

Like Lizzo, I am feeling good as hell. There are times when it is hard to be a financial journalist. This is not one of those times. It is all kicking off. Markets have changed direction, and they're on the move. There's tons of economic news. Companies are reporting. The president is crazy. There's just so much to write about. It's an embarrassment of riches.

Aiden Reiter (0:36)

Yes, but if you start playing the flute and twerking, I'm leaving.

Rob Armstrong (0:42)

This is, of course, Unhedged, the markets and finance and twerking show from the Financial Times and Pushkin. I am Rob Armstrong, coming to you from beautifully sunny New York City and joined by Aiden Reiter.

Aiden Reiter (1:00)

Hello.

Rob Armstrong (1:02)

So, there's so much to talk about, but I think we should start with the GDP report, which was both interesting and a bit confusing. And of course, the headline here is that it had a negative number attached to it.

Aiden Reiter (1:16)

Definitely looks very bad on its surface.

Rob Armstrong (1:19)

Yes. If you look, to go to minus 0.03% all of a sudden looks like a sudden stop for the US economy, but this is not quite true.

Aiden Reiter (1:28)

Yeah, minus 0.3 again is a really big change from the US economy that had outshone all growth expectations and forecasts over the last two years.

Rob Armstrong (1:35)

Two years, yeah, had been killing it. Well, the first thing is, let's talk about the good stuff in the report and then we'll explain how the good stuff still left us with a minus 0.3%. The good stuff is that consumption held up.

Aiden Reiter (1:49)

Yeah.

Rob Armstrong (1:50)

So US household consumption in real, that is inflation adjusted terms, up 1.8%. Good.

Aiden Reiter (1:56)

Way over expectation, which was 1.2%.

Rob Armstrong (1:58)

Yeah. And it's about... It's kind of where we've been. So we're not accelerating, but we're still out there buying stuff.

Aiden Reiter (2:04)

Yeah. People are buying. The American consumer is unsatiable as always.

Rob Armstrong (2:09)

Yeah. And business investment now, now we get into the tricky stuff. Business investment was very good.

Aiden Reiter (2:16)

Yes. Crazily good.

Rob Armstrong (2:17)

Crazily good. So purchases of electronic equipment alone, or I guess the term is information processing.

Aiden Reiter (2:24)

Information processing equipment.

Rob Armstrong (2:25)

Equipment. So computers, those purchases alone added a percentage point to GDP. It was a bananas number up like 20 odd percent.

Aiden Reiter (2:36)

22.5 percent, I believe.

Rob Armstrong (2:37)

Yeah. It was a bananas number. So that is like businesses are investing.

Aiden Reiter (2:43)

It looks like that.

Rob Armstrong (2:43)

And we had this number from Microsoft, their earnings number, and Microsoft and Meta actually reported yesterday, the artist formerly known as Facebook, because I like to think of it. And they said, we are still spending money hand over fist. We're shoveling money into the AI inferno.

Aiden Reiter (3:03)

Which was not a guarantee, especially since-

Rob Armstrong (3:05)

No, we've been worried about that.

Aiden Reiter (3:07)

We're still in the quarter where we had DeepSeek Revelation, which we thought would really transform this entire ecosystem. I mean, NVIDIA, which is, if you think about people are going down into the mines, NVIDIA is the shovel seller. They're off 20% this year.

Rob Armstrong (3:20)

Yeah, so that was a big number. But this is where we get into the points of confusion. And the points of confusion are about inventory growth and about imports. So I guess we should understand the, we should explain rather, the dynamics of the GDP calculation. That is the little bit of algebra we do, or summing up, it's not even algebra.

Aiden Reiter (3:42)

No, it's algebra, there's different variables.

Rob Armstrong (3:44)

Yeah. That get us to the GDP number. And the point about this is that imports are a minus in that equation. And we had a huge surge in imports this quarter.

Aiden Reiter (3:56)

Yeah, GDP at its base is looking at your gross domestic output, the things you make and invest and buy in America.

Rob Armstrong (4:02)

Yes.

Aiden Reiter (4:03)

Imports inherently are not made in America, they are made somewhere else.

Rob Armstrong (4:06)

Yeah.

Aiden Reiter (4:06)

So the point is you take those out of the equation in order to both not double count them in what you buy and what you invest in, and also because they're just not made in America.

Rob Armstrong (4:14)

Yeah, yeah. So the avoiding double counting point is this. If somebody buys something in America, that's a plus for GDP.