Sometimes we feel like we need to be the watchdogs for financial reporting, and this week we have a classic example. Pulled from the Sunday, October 28, 2018 online headlines in Yahoo! Finance (Yahoo! only reported it, they did not author the piece), was this lead:
That seems like an innocuous statement on its face, but anyone with sufficient training in economics understands that it is blatantly incorrect. In Macroeconomics, we learn that GDP, or Gross Domestic Product, is a measure of the economy output of a country over a defined period. Changes in GDP are used to illustrate the health of the economy by measuring growth or contraction in GDP. Presidents are measured, in part, by the health of the economy during their tenure. In 2018, we have experienced a very healthy growth rate, as measured by the GDP, which was 4.2% in Q2, and has been estimated to be 3.5% in Q3. The Q3 number is subject to a couple revisions, but it is likely to be fairly accurate at 3.5%.
Apparently, some of the President’s critics are not terribly happy about this revelation, as evidenced by the above-captioned headline. One of Trump’s main economic targets is to narrow the trade deficit (see definition below). In Q3 that did not happen, as imports outpaced exports by an increased margin. Ipso facto, they imply that Trump is failing in his attempts to balance international trade.
For definitions of terminology in finance and economics, we highly recommend the website Investopedia.com, from which we pulled this explanation of the effect of trade imbalances on GDP:
“Impact of the Balance of Trade: The balance of trade is one of the key components of a country's gross domestic product (GDP) formula. GDP increases when the total value of goods and services that domestic producers sell to foreigners exceeds the total value of foreign goods and services that domestic consumers buy, otherwise known as a trade surplus. If domestic consumers spend more on foreign products than domestic producers sell to foreign consumers – a trade deficit – then GDP decreases.”
Simplified, this means that the author has it exactly backwards; increased imports produce reduced GDP. We can think of only two possible reasons for erroneous reporting such as this. The first is that the authors and publishers have such a limited understanding of economics that they should probably seek a different focus for their journalist talents. The second, and more likely, scenario is that their political bias causes them to put out misinformation in hopes that voters will buy their hype. Either way, we are here to assist in revealing “fake news” wherever we can.
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