MP021: The Latest GDP Report, Imports, and Context with Jason Ranallo

Every quarter, a new set of GDP reports make headlines. In our latest podcast we dig into Gross Domestic Product, market reaction, and dig into the details behind the numbers.  

Here’s the backdrop: The first estimate of Q1 GDP report showed the U.S. economy contracted in the first quarter of the year—which rattled markets Wednesday morning. That said, if you checked markets after lunch the same day, you might have missed the whole reaction.  

As with most things, there is a nuanced story beneath the headline. 

Imports. Compared to the prior quarter, imports increased by over 9% (~40% annualized), which in economic accounting reduces GDP. Here’s the takeaway: imports bringing down GDP is likely a short-term effect. We believe that businesses and consumers were buying goods ahead of expected tariffs, thereby increasing imports in Q1. This is front-running—essentially stockpiling today to avoid future costs tomorrow. We would expect imports to ease or average out in future quarters. 

At Vector, we believe that emotional investing based on headlines is usually unhelpful. Contractions and advancements are a normal part of the economic cycle. But predicting exactly when they’ll come, how long they’ll last, or what will cause them is nearly impossible. That’s why we focus on planning for uncertainty, rather than trying to avoid it altogether. 

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