Separating Wheat From Chaff in America’s Q1 GDP

Fisher Investments ^ | 5/1/25 | FI Editorial Staff

[EnderWiggin1970]

Data unveiled early Wednesday morning showed US GDP fell -0.3% annualized in Q1, missing expectations for a 0.4% rise—and playing right into widespread fears.[i] Most headlines cast this “weak” report as a sign of what lies ahead as tariffs’ teeth really start to bite. But slow down. While there are clear signs of tariffs’ effects here, there are also mitigating factors and underlying health in these data worth acknowledging.

First, let us get this out of the way: Tariffs did affect this report in all likelihood, but probably in ways that mask underlying health. The former was easy to see in Q1, as businesses trying to front-run tariffs drove a ginormous 41.3% annualized import surge.[ii] Here is the thing: In calculating GDP, statisticians subtract imports from exports. So Q1’s boom detracted a whopping -5.0 percentage points (ppt) from the headline growth rate.[iii] This math may be sensible enough if you want to tally only a single nation’s growth, but considering the value imports bring to businesses (as goods sold, component parts or supplies), it is one reason GDP isn’t synonymous with “the economy.”

Government spending was the other main drag, detracting a quarter percentage point from growth, but its economic role is always open to interpretation. Less government spending isn’t always bad—and vice versa.

[EnderWiggin1970]

TLDR: The economy did fine in 1Q. Claims of a "recession" due to the negative number reported in GDP are overblown because the cause of that number was simply a pull-ahead of shipments looking to beat the tariffs. That's a one-off event.

[Gen.Blather]

The price of Brent Crude is $61. The low price of oil is due to the fact people aren’t traveling or building stuff. If the price was high, it means the economy is really good with lots of activity using oil. The fact it is low means the opposite. Two weeks ago, at their earnings call, the CEOs of Costco and Walmart said they’d lowered profits to stimulate sales volume. This isn’t’ something indicating a good economy. It’s not Trump or his tariffs. It’s four years of Biden and other factors beyond our control.

[cowboyusa]

Rhe GDP was fake, propped up by Government Spending. It was in the negative.