The Economy Is Much Worse Than the Numbers Say

Barry Ritholtz of The Big Picture said a couple of days ago that the abysmal GDP numbers, down 6.1 percent in the first quarter, were artificially improved by the collapse of imports.

Today, he follows up with a note from an economist that explains this perverse accounting effect (emphasis mine):

“An explanation about why the decline in imports is helping GDP growth. As you know, imports are subtracted from GDP. Because imports are declining in absolute terms, you get a positive effect from a negative negative. Just to be clear as to what this chart is telling us: the drop in imports contributed 6.05 percentage points to the GDP growth rate.

In other words when you subtract a negative, you get a positive. Without that false effect, the GDP report would have been an astonishing negative 12.2 percent. That’s a capital D depression right there, folks.

It’s yet another reminder to take economic reports with a grain of salt. You’ve very often got to look behind the numbers to figure out what’s really going on.

That’s the case with the headline unemployment number. Those figures don’t include people who have given up looking for work or who are only able to find part-time work. Include them and the unemployment rate jumps by about two-thirds.

Let’s see if the big media outlets pick up on this GDP business.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.