This post is a sort of bleg, as national income accounting is not my area. One reason that I was surprised by the 2.9% fall in Q1 RGDP is that the other indicators had looked pretty good. For instance manufacturing (the main component of industrial production) was strong in the first quarter, rising at more than a 2% annual rate. So I decided to check the BEA GDP data to see if services were the problem in Q1. Nope, services grew.
Then I noticed that the BEA data is expenditure based, not output based, so I tried to back out manufacturing output in 5 steps. I looked at the contribution to the total change in RGDP from:
1. Goods sold to consumers (+.04%)
2. Equipment sold to firms (-0.16%)
3. Change in inventories (-1.70%)
4. Export of goods (-1.12%)
5. Import of goods (-0.25%)
I had thought that these 5 categories would add up to the change in manufacturing from the IP series, but it doesn’t even come close. Indeed it adds up to minus 3.19%, more than explaining the entire 2.9% drop in RGDP. It was a collapse in goods production.
And yet the manufacturing component of the monthly IP data series was up at more than a 2% rate in Q1. All the other cyclical indicators such as monthly payrolls were also strong. The privately estimated PMI index averaged above 50 (showing growth.) So lots of goods were produced, but they weren’t sold to consumers nor were they sold to producers, nor were they exported, nor were they put into inventories. So where did this goods output go?