US GDP is one economic indicator coronavirus hasn’t hit
The damage to the US economy from the coronavirus outbreak could actually look less severe in the statistics than it really is because of what the illness will do to international trade.
The gross domestic product is the common way we measure economic conditions. A lot of things go into that number, which right now is looking like 2 percent-plus annual growth for 2020 although the virus is causing some downward adjustments to that number.
One of the factors in the GDP calculation is the US trade deficit with other countries. America has its biggest trade deficit with China — at $345.6 billion in 2019.
The coronavirus, of course, has reduced the number of goods we are buying from China. And the effect is likely to last because many Chinese factories have been shut down.
Since we are taking in fewer goods from China, the trade deficit will be lower. And since the trade deficit will be lower, the US GDP will be helped.
But US companies, of course, will also be selling fewer goods to China because of the virus. Chinese citizens, as I said before, aren’t going to be buying McDonald’s burgers or Apple products when they are too afraid to leave the house.
But because of the imbalance of trade, the proportion of goods coming into the US from China should be hurt more than the proportion of products going in the other direction — from the US to China.
At least, that’s the theory.
Don’t get me wrong. The coronavirus isn’t going to be good for the US economy. As I said last time, companies are drastically lowering their estimates for earnings in the first quarter of 2020.
And those earnings estimates are likely to continue to drop until company executives get a better handle on how long this disease is going to last and how much it is going to spread.
All I’m saying here is that a quirk in the way the GDP is calculated should prevent that key economic measure from fully revealing the true damage the virus is doing.
Source : John Crudele Link