How High …. 1Q GDP Distortions?
This is a derivative of the inventory developments highlighted above but its worth a separate mention. The Chart of the Day below shows the USDA’s weekly read on Soybean exports to China. From a bigger picture perspective, exporting a bunch of soybeans is largely insignificant. But from a GDP accounting perspective, it can have an outsized impact. We saw this same dynamic manifest conspicuously last year as soybean exports jumped ahead of tariff implementation in 2Q18. The rise served to drive a meaningful increase in agricultural exports which resulted in a pronounced improvement in the trade balance. Indeed, net exports made their largest contribution to Headline Growth of this cycle at +1.22 pts. Of course, we saw the converse in the next quarter as the distortion reversed.