The US Economy headed in the reverse direction as Trump flip flops on economic policies – But it’s not into recession yet as GDP shrinks as consumer spend contracts this quarter – No Recession, says Fed Reserve Chairman Jerome Powell – Labour market, Investments, Employment, stable.
The Federal Reserve Bank of Atlanta forecast a sharp decline of 2.7% for US GDP in the first quarter of 2025. That would mark the worst quarter since the Covid era in mid-2020.
The US economy has just witnessed its worst quarter since 2022 post covid as President Donald Trump’s significant policy changes unnerved consumers and businesses worldwide. Tariffs now and then cool off and call to negotiate has placed investors and traders in an atmosphere of unprecedented uncertainty pushing the economy to the nervous edge.
Gross domestic product, which measures all the goods and services produced in the economy, registered at an annualized rate of -0.3% in the first quarter, the Commerce Department said Wednesday.
Imports skyrocketed from -1.9% in the fourth quarter to 41.3% in the first three months of the year. Meanwhile, exports registered at a 1.8% rate. When imports exceed exports, which subtracts from GDP and that was by far the biggest drag on growth in the first quarter. The difference between imports and exports subtracted from GDP by the most on records going back to 1947
Trump’s top trade adviser, Peter Navarro, called the GDP report “the best negative print I have ever seen in my life.” “The markets need to look beneath the surface,” Navarro said Wednesday in a CNBC interview, pointing to the sharp increase in domestic investment last quarter. However, much of that came from businesses increasing their inventories ahead of tariffs, the Commerce Department said.
Here are the details from the report – Not all Doom & Gloom
• US consumers curb spending amid high prices, economic concerns
• Purchase volumes are down across the industry, Synchrony says
• Americans have been accumulating more debt
• Delinquencies expected to increase as student loan forbearance ends
There were several signs of weakness in the first GDP report of Trump’s second term, but it wasn’t all doom and gloom. Consumer spending, which powers about 70% of the US economy, slowed sharply in the first quarter to a 1.8% rate, down considerably from 4% in the prior three-month period
That slowdown was largely due to Americans cutting their spending on goods, and was the weakest rate since mid-2023. Government spending also weighed on the economy, with federal outlays dropping to -5.1% from 4% during the same period.
Meanwhile, businesses actually stepped up their spending, likely to get ahead of any expected price increases stemming from Trump’s tariffs. Business investment in the first quarter expanded at a 9.8% rate, up sharply from -3% in the fourth quarter.
Wednesday’s report also showed that inflation took a sharper than expected upswing during the first quarter. The Personal Consumption Expenditures price index rose an estimated 3.6% for the quarter, up from 2.4% during the fourth quarter, according to the report.
A recession is technically defined as a broad-based contraction in the economy — encompassing the labour market, consumer spending, industrial activity and business investment — that lasts for more than a few months. And even though it may feel like there is a recession, according to polls and surveys, the economy remains in good shape on a few important fronts.
Unemployment remains relatively low — 4.2% as of March — businesses are continuing to invest in their operations and consumers haven’t retreated with their spending in any meaningful way just yet, government data reveals.
Still, the economy can quickly take a turn for the worse, especially if Trump ups the ante on his tariff blitz. “I don’t think we can call a recession from this data right now but it is a sign that we’re on this razor-thin edge where the longer the tariffs remain in place the more likely we are headed for an economic downturn,” Gregory Daco, chief economist at Ernst & Young, told CNN’s Matt Egan.
Yet another economic report released Wednesday showed a precipitous drop-off in hiring by businesses in the US private sector, which doesn’t bode well for economic growth in the future. Employers added just 62,000 jobs in April, according to payroll company ADP’s latest monthly report released Wednesday morning. That’s well below the 147,000 jobs added in March.
A rule of thumb for defining a recession is two consecutive quarters of negative GDP, which hasn’t happened as yet. The National Bureau of Economic Research is the official recession arbiter, though the group’s call can come many months after a recession has officially started.
The last time the US economy was in a recession was in 2020, which lasted just two months and was spurred by the Covid-19 pandemic. Before that, it was the Great Recession, which lasted from December 2007 through June 2009 and was the most severe economic downturn since the Great Depression.
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