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Imports: the Swing Factor In American Consumption.

A lawyer friend of mine asked me, if U.S. GDP is declining at "only" at annualized 6% rate, how come consumption (and job growth) is as sluggish as it is?"

The answer can be found looking at the equation for GDP, which is,

GDP=C+I+G+X-M, where

C=consumption
I= investment
G= Government spending
X= exports
M= imports

Yes, GDP is down. But what is way down is imports, specifically the amount of imports in excess of exports, so that the U.S. is reducing its trade deficit for the first time in some years.

Put another way, GDP would be down a lot more without the decline in imports (formerly a hugely negative term).

On the other hand, consumption has to bear the brunt of both the GDP fall and the fall in imports. So  it is likely to fall at an over 10%, rate, as opposed to 6%.