U.S. Q1 GDP Surpasses $7 Trillion

Is the US economy not only not in recession but actually getting better?

Recently, the US Department of Commerce released the economic report card for the first quarter of this year—a sequential increase of 0.4%, a growth rate of 1.6% on an annualized basis, and a GDP calculated at market prices of a staggering $28.28 trillion.

$28.28 trillion?

Last year, the US's annual GDP was only $27.36 trillion. Just one quarter into this year, and it has already matched the amount of the entire previous year. Has the US Department of Commerce gone mad?

The proportion of China's GDP to the US's GDP has decreased again, has the US's advantage increased further?

$28.28 trillion, the US is surging?

In fact, the $28.28 trillion mentioned here is not a quarterly figure, but an "annual" achievement.

The reason is that the way the US and our country announce GDP figures is different. When the US announces the economic figures for a single quarter, it uses "annualized figures adjusted for calendar and seasonal factors."

It sounds quite complex, what does it mean?To put it bluntly, it's like multiplying the performance of a single season directly by 4 and then using it as the annual GDP performance.

Advertisement

Taking the first quarter of this year as an example, the U.S. announced a GDP annualized value of 28.2845 trillion dollars, which, when converted back to the performance of a single quarter, is 707.11 billion dollars.

In other words, 707.11 billion dollars is the true performance of the U.S. in the first quarter.

People may not understand, why not just announce the performance of the first quarter directly? Why do we have to convert it to an annualized value, isn't that like "taking off your pants to fart"?

It's not, in the words of American economists, "using this method of magnifying data can effectively highlight the transformation relationship between economic developments in each quarter."

The economic growth rate of a single quarter may only be a fraction of a percentage point, but if converted to an annualized value, it could be 1 or even 2 percentage points, and the data growth is obviously magnified.

The underlying logic here is that compared with long-term economic performance, American politicians prioritize votes, so they often pay more attention to short-term economic fluctuations. This "magnification effect" of the data can have a greater incentive effect on politicians.

But it's obvious that achieving a GDP of 28.28 trillion dollars in a quarter is simply unrealistic, and there's no way for the U.S. economy to surge wildly.According to data from the U.S. Department of Commerce, the U.S. GDP grew by 1.6% year-on-year in the first quarter of this year, which is not only significantly lower than the 2.4% predicted by economists, but also less than the revised 3.9% from the fourth quarter of last year.

This implies that the U.S. economy has "rarely" shown signs of decline.

A more serious issue is that as economic growth slows down, the stubbornness of inflation begins to stand out.

The PCE price index increased by 3.4% in the first quarter, far exceeding the 1.8% of the fourth quarter last year, and the core PCE increased by 3.7%, also higher than the expected 3.4%.

The Federal Reserve has always set a target figure of 2% for itself.

To some extent, this may be the worst-case scenario that the Federal Reserve had anticipated:

After more than two years of aggressive interest rate hikes, inflation remains high, and the once impressive economic performance has also been backfired, with the threat of stagflation looming.

In the 1970s, due to the Federal Reserve's "stop-and-go" monetary policy, inflation in the United States was not only not curbed but also soared wildly like a runaway horse, with the inflation rate once reaching a crazy 14.5%.

At that time, the United States fell into a severe stagflation crisis, the economy was completely depressed, and under the soaring unemployment rate, the U.S. economy suffered a devastating blow.

Now, the U.S. economy seems to be heading towards the shadow of history. If a stagflation crisis really breaks out, this Biden administration and the Federal Reserve will both "go down in history", and it is also possible that they will step down on the spot.Is China's Advantage Increasing?

The U.S. GDP in the first quarter was 7 trillion U.S. dollars, with an actual growth rate of 2.9%, while China's GDP in the first quarter was 26.3 trillion yuan, 4.1716 trillion U.S. dollars, with an actual growth rate of 5.3%.

However, the proportion of China's GDP to the U.S. GDP has once again decreased, and it has even fallen below 60%, dropping to 59%.

Although the U.S. economic growth rate is not as high as China's, has its advantage further expanded?

The answer is obviously no. The reason for this counterintuitive result is mainly influenced by two factors - inflation and exchange rates.

Everyone knows that inflation in the United States is high, and with the rise in prices, nominal GDP will naturally increase accordingly.

This principle is not difficult to understand. Last year, Argentina's economy was in recession, and after deducting price factors, the actual GDP decreased by 1.6%, which was not an easy time.

But if calculated according to nominal GDP, Argentina's GDP actually surged by 130.2%, leading the world.

The comparison between the United States and China is also the same principle. Compared with the high inflation in the United States, our CPI data has always been quite stable, and there is much less "water" in the GDP data.

Although the proportion of China's GDP to the U.S. GDP has decreased, this does not reflect the true economic level of the two countries.Now, let's discuss exchange rates. When calculating GDP, people often use the US dollar as the benchmark currency and convert it into dollars for comparison.

The problem arises here: exchange rates are not fixed, and once they fluctuate, errors are inevitable.

Under the continuous interest rate hikes in the United States, the US dollar continues to strengthen, and the currencies of the world are basically under pressure, with exchange rates against the US dollar decreasing.

This leads to the situation where, when we convert GDP into US dollars, we inadvertently suffer from the loss of exchange rates and cannot judge the true economic level of our country.

Therefore, it is obviously untenable and meaningless to say that the advantage of the United States against China has increased just because the proportion of China's GDP to the US GDP has decreased.

In conclusion:

After all, although GDP data can intuitively reflect the economic development of a country, it often has a certain degree of deception.

Instead of blindly pursuing GDP numbers, we might as well explore the deeper meaning behind GDP, and help the people live a better life, which is the real deal.