The big story from the advance estimate of first quarter GDP is imports. Here’s the headline in one graph:
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Imports are graphed as negative because they are subtracted from the GDP calculation. More on that toward the end of this piece. The important thing to notice is that the volume of imports went through the roof in the first quarter of 2025. (Click here to download my Excel workbook.)
In fact, imports in 2024:4 were $3,689.8 billion. In 2025:1 they were $4,023.1. That’s a pretty big increase.
The reason advanced is hoarding. Sellers who rely on imports, anticipating tariffs, increased their purchases to build up inventories.
Nice story, but there’s a slight problem:
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Oops! Imports in 2025:1 were $4,023.1. But inventories rose by only $140.1. I have to add that this is an exceptionally large change in inventories:
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One obvious possibility is that the increase in imports was mostly services. By definition, those can’t be held as inventories. And, in fact, it’s not true:
Which leaves us with a mystery. Where are the “excess” imports being stored? My guess is that the inventory change numbers are understated (to put it politely). Let’s wait for the two forthcoming revisions before passing final judgment.
The point of this exercise is that imports do not vanish. They are either sold or held as inventories. Gross Domestic Spending (GDS) did not increase dramatically. (GDS is C + Business fixed investment + G. Note that this includes spending on imports.) In fact, between 2024:1 and 2025:1 GDS increased by $698.1 billion.
Others Weigh In
I am not alone in thinking about this. First up, Greg Ip, economics columnist for the Wall Street Journal.
The hypothesis that this was largely caused by pharmaceuticals remains hypothetical. Implicit in Brad Setser’s argument is that the reported inventory number is wrong and will be revised upward. A lot.
Next in line, a perennial favorite Jason Furman:
As usual, Jason is a voice of sanity.
A Reminder: Why Imports Are Subtracted
GDP = C + I + G + (EX – IM). I includes inventory change. C, fixed investment, and G measure spending. But GDP measures production. We need to adjust total spending to get production.
First, consider goods produced but not sold. Those unsold units are counted as inventory increases. Adding the change in business inventories to total spending fixes this problem.
Second, what about products produced here but sold in another country? Those are exports, which we add to total spending.
Finally, consider products not made here but sold here. Those are imports. We subtract them from total spending.
Those three correcting factors convert total spending into production. This is not esoteric economic theory. This is accounting. Anyone who wants to talk about GDP should understand what it measures and how it’s calculated.
