We write a composition about GDP's composition : Planet Money : The Indicator from Planet Money The Bureau of Economic Analysis released their quarterly gross domestic product report this week. It showed GDP shrank at an annualized rate of 1.4%. Not good. But there's a mix of stories in the details. We explain with the help of a bit of music.

Econ Exploder: GDP

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This is THE INDICATOR FROM PLANET MONEY. I'm Adrian Ma, here with Wailin Wong and Darian Woods.




Hey, hey.

MA: Today, we're talking about GDP - gross domestic product.

WONG: And we'll get the pain out of the way fast. OK, GDP was down 1.4% in the first quarter. That's an annualized figure. And while not all economists are necessarily worried, down is certainly not the direction we want to go if we want incomes to grow.

WOODS: No, it is not. But what we were fascinated by was, in this report, that 1.4% decline is only the overall total. There are actually a lot of booming sectors once you break down the numbers. It's quite a varied picture.

MA: And speaking of breaking down the numbers, there's actually a very elegant formula for GDP, and econ nerds might know this - it is consumption plus investment plus government spending plus exports minus imports.

WONG: Easy peasy.

MA: Yeah, that's it. In other words, C plus I plus G plus X minus M. It just rolls off the tongue, right?

WONG: (Laughter).

MA: If you're an econ student, you definitely have heard this formula - C plus I plus G plus X minus M. But for everyone else, it is - well, it's definitely a mouthful. And so we thought, like we do on THE INDICATOR, we could come up with a way to try and make this a little easier to remember.

WOODS: Like some mnemonics.

MA: Right. We thought, like, let's come up with some memorable phrases to try and remember this formula.

WOODS: OK, so I've got one - creating instrumental, groovy xylophone melodies.

MA: Very thematic. I like it.

WONG: How about cows indoors get extremely messy?

WOODS: I like it.

MA: Mine is - cheese is great, except mozzarella.

WONG: Or manchego or muenster (laughter).

WOODS: I don't know. These mnemonics kind of seem harder to remember than the actual formula, to me.

MA: Yeah. I don't know if this is really doing it.

WOODS: They're creating more clutter. So what about a song?

WONG: Oh, you wrote us a song - an econ song?

WOODS: I did. It's a very simple melody, you know, just to help learning. So here we go.

MA: On the keys, Darian Woods.


WOODS: (Singing) C plus I, and then add G. X minus M is GDP. C plus I and then add G. X minus M is GDP. X minus M is GDP.

MA: "Sesame Street," look out.

WONG: This is a banger.

WOODS: (Laughter) Yeah. Grammy Awards, where are you?

MA: Right. So that is just a little preview of what we're in for today. We're going to break down the first quarter's GDP numbers with the help of song.


WONG: OK. To fully deconstruct this GDP report, we're going to start with consumption. Darian, can you hit a C for me?

WOODS: Here you go.


WOODS: All right. There you go - a C for consumption, which is all the goods and services that we're buying. And those numbers are up strongly for the first three months of 2022. Personal consumption is up a sturdy 2.7% annualized. So that means they take the last three months against the previous three months before that, and then they multiply it out by an entire year. And all the numbers you're going to hear in the show will be annualized.

WONG: So 2.7, that is a - that's a lot of spending.

WOODS: Yeah, it's a pretty solid number. And, you know, we're seeing a lot of pandemic restrictions ease, and people are spending on both goods and services. So, you know, they're buying skateboards and haircuts. You know, you can do both. You can look sharp at the skate park.

MA: I mean, you got to.

WONG: (Laughter).

WOODS: So after consumption - you know, with the C - I've got the next component, I. And that stands for investment. There's no I note, but, you know, in the song...

MA: (Laughter) Not with that attitude.

WOODS: Yeah.


WOODS: Maybe the E will do.


WOODS: So investment - that is, like, business spending for, say, McDonald's buying a new fryer, or, like, a farmer buying a new tractor, but also construction of new homes. And investment is up 2.3%.

MA: So just focusing on your numbers, the C and the I, Darian - that sounds like a pretty sunny GDP report so far.

WOODS: Yeah. Why not just stop here?

WONG: Well, but there's more to the song, right?

MA: There is. The next letter in the GDP formula - C, I - is G.


MA: So G stands for government spending, which could be spending on government services like public schools and national defense. It can also be spending on tangible things like building roads or providing equipment for the military. So in the first quarter of this year, government spending - we're talking federal, state and local government spending - it was 2.7% lower.

WOODS: So government spending declined in the past few months.

MA: Right. And so the Bureau of Economic Analysis, which compiles these numbers, they say the decline in spending is mostly due to less national defense spending in the last quarter. But what I think is even more interesting is that when you look at the numbers, it's also driven by less, you know, what we might think of as COVID-19 response. So just for context, in 2020 and 2021, the government was spending a lot of money on things like developing the vaccine and rolling it out across the country. It was also making payments to banks that were helping process paycheck protection loans for small businesses. And so those kind of expenditures really caused government spending to spike earlier in the pandemic, and what we're seeing over the past several months is that spending tapering off.

WONG: OK. Should we, like, review the song? We've covered C and I.

MA: And G.

WOODS: OK. So next, we have the X and the M.

WONG: Yes. I am here to explain X and M. So we're going to take a little turn here. I would just like to say that my part of the GDP equation/song is a total doozy, and it kind of involves some funky math. It's also kind of taking the heat for the negative growth number this quarter. OK, so X minus M - that stands for exports minus imports, and sometimes it's called net exports. And this part of the equation is the way that international trade gets accounted for in the GDP figures. Think about all the goods and services that the U.S. buys from other countries, like, I don't know, French champagne.

WOODS: Ethiopian roses.

MA: Egyptian cotton.

WONG: Yes. These are all imports.

MA: Japanese toilet attachments.

WOODS: (Laughter).

WONG: No one does a bidet better...

WOODS: They make the best.

WONG: ...Than the Japanese. That's true. So, Darian, let's say you're buying Ethiopian roses for a special person in your life. And, Adrian, let's say you run a business, and you need a German conveyor belt. That spending gets counted in C, consumption, on Darian's side and investment, I, on Adrian's side. But then we have to kind of wash out the roses and the German conveyor belts from GDP because we in the U.S. did not grow the roses or make the conveyor belt.

WOODS: I guess that's fair.

WONG: And here's the thing - in the first quarter, the U.S. bought way more stuff from overseas than it exported. Imports were up almost 18%. And all of that feverish buying doesn't get counted in GDP. It gets subtracted in X minus M. And that doesn't necessarily mean the economy is in trouble. It's just a math thing.

WOODS: Right. So I guess my consumption and investment numbers that were way up, part of that was a little bit of a mirage because that was stuff bought from overseas and not produced in the U.S.

MA: It's funny because imports are such an important part of our economy, but they're also this just, like, phantom thing in the GDP equation.

WONG: Yeah. It's kind of like a mathematical mind bender. So that's why I'm so glad we have this catchy tune to remind us to subtract the M from the X so you're accurately counting just the stuff produced domestically.

WOODS: That's right.

MA: Yeah. And if you're struggling to remember what that GDP formula is again, well, just remember this song. Darian Woods, take it away.


WOODS: (Singing) Acronyms make me queasy. I want to make it so easy. C plus I, and then add G. X minus M is GDP. C plus I and then add G. X minus M is GDP. X minus M is GDP.


WONG: This is going to go platinum. Do you think we could get the Nobel Prize in economics for this jingle? I'm just trying to dream big.

MA: Nobel Prize in economic songcraft.


WOODS: This show was produced by Jamila Huxtable, with engineering from Isaac Rodrigues. It was fact-checked by Corey Bridges. Viet Le is our senior producer, and Kate Concannon edits the show. THE INDICATOR is a production of NPR.

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