Here’s a more detailed look at GDP for the first quarter.
Yesterday, I reported Real GDP Down 0.3 Percent, Real Final Sales Down 2.5 Percent, Inventories Soar
Front-running tariffs led to a collapse in real final sales, the bottom-line estimate of GDP
The St. Louis Fed data repository was seriously late yesterday in updating its databases with GDP data.
The data is now available and the lead chart is a new one.
Percentage Point Contributions to GDP 2025 Q1 Advance
- PCE Services: +1.10 PP
- PCE Goods: +0.11 PP
- Government: -0.25 PP
- Nonresidential Investment: +1.29 PP
- Residential Investment: +0.05
- CIPI: 2.25 PP
- Exports: +0.19
- Imports: -5.03
That totals to -0.29 which the BEA rounded to -0.3 percent.
Imports look ugly and they are. But imports don’t really subtract from GDP. The BEA subtracts imports to account for goods and services erroneously added to Personal Consumption Expenditures (PCE).
Real Final Sales (RFS) is the bottom line estimate of the economy. The difference between the reported headline number and RFS is Change In Private Inventory (CIPI) that nets to zero over time.
The outright terrible number in the report is RFS at -2.5 percent. (Baseline -0.29 minus 2.25 CIPI = -2.54 vs reported -2.50).
Those looking for something good can point to nonresidential investment that contributed 1.29 PP to the quarter.
And although April may show some more tariff front-running, we won’t see another 5 percent subtraction for imports.
Easy to Spin
It’s easy to spin this as better or worse than reported depending on a focus on fixed investment or real final sales, both distorted by tariffs.
But take a look at residential investment and PCE. Residential real estate is dead. And PCE goods was barely alive.
The consumer wasn’t actually blazing in Q1 with a combined PCE contribution of +1.21 PP, nearly all services.
Government contributed -0.25 PP and rates to be weak for the rest of the year.
What About Jobs?
Looking ahead, we rate to see pullbacks in government jobs.
And if ADP is any indication, there’s a huge slowing in the private sector as well.
ADP Employment Report Much Weaker than Expect
Yesterday, I commented ADP Employment Report Much Weaker than Expect, Large Employment Stalls
Economists expected 125,000 jobs. ADP reported 62,000 with negative revisions.
Businesses with 20-49 employees have been struggling since the beginning of 2024. We are now seeing a rapid deceleration of the largest employers.
Don’t put any faith in this, but The Initial GDPNow Nowcast for 2025 Q2 is 2.4 Percent
We don’t have any data reports for the second quarter yet. I think that is a snapback estimate based on imports and CIPI.
On Friday, we hear from the BLS on jobs. The Bloomberg economists’ consensus is +130,000.
If ADP is accurate, we might see something like 40,000.
The first 30 days of last quarter were before Trump had any actionable influence on GDP. The last 60 days of last quarter had no time for policies to affect GDP. Policy changes take months to filter through the economy, and this time is not different. 1st quarter results are the outcome of the previous administration, and fed policies.
JD vance mused that “most” of the presidents whose portraits adorn the Oval Office — which include Ronald Reagan, James Madison, George Washington and Abraham Lincoln — were mere “placeholders” who weren’t “men of action.”
“Imports look ugly and they are. But imports don’t really subtract from GDP. The BEA subtracts imports to account for goods and services erroneously added to Personal Consumption Expenditures (PCE).”
So if imports are subtracted to correct PCE does that mean that PCE was (0.11 – 5.03) = -4.92 ?
Or looking at the formula GDP = C+I+G+(X-M), isn’t M (Imports) mostly included in either “C” consumer spending (for imports that are sold as is to consumers) or “I” business spending (for imports that are added to business inventory which will be sold as is to consumers). It would seem that the only imports that aren’t taken into account in “C” or “I” would be imports that are intermediate products (to be used as a component in a consumer good further processed in the United States) or imports that are used as a capital investment (some type of manufacturing machine) in the production of some item for sale.
My first guess is that most imports are already included an inflated “C” or “I” number and that is why you have the low RFS (Real Final Sales) number.
All Trump needs to do is drop FDIC deposit insurance back to $100,000.
Doubting Thomas? The last time this approach was executed the S&P 500 rose 32.4 percent that year.
You see, banks don’t lend deposits. All bank-held savings are lost to both consumption and investment. You’d think that the internet would increase knowledge, but it buries it.
Yeah, right.
It’s the Internet’s fault no one believes your theory that reducing FDIC insurance would boost the economy as much as Trump wants
The truly ignorant have the loudest voices. The ABA censored the opposition. Even Scott Sumner agrees. The time bomb of 1981 is prima facie evidence.
My market zinger forecast predicted it. Go fish
Mish, I took a look at the BEA report yesterday, and I see three distinct values that all start with “Real Final Sales”.
It appears you are using “Real Final Sales of Domestic Product”, (-2.5%), which includes exports, rather than “Real final sales to domestic purchasers”, (+2.3%) or “real final sales to private domestic purchasers”, (+3.0%).
Can you explain the differences between these 3? I don’t think Real Final Sales of Domestic Product “only” differs from GDP because of CIPI.
Well it does show the economy is not falling off a cliff. It may come but it is not there yet in the statistics. Lots of pessimists in the media such as Bloomberg, WP, NYT and the WSJ I notice. Many of their friends have lost their jobs.
This is still economic inertia from the previous administration.
Apparently, trump is sucking up to the Chinese. What a leader he has turned out to be. Tech is driving the market as well.
ADP is never accurate and of course remember that NFP by definition differs from 0 by +/- 100K. Q2 GDP is not going to be good, even with a bit of consumer front running. Friend in Carolinas just said number of Amazon deliveries in his neighborhood is down a lot compared to last fall.
That’s good news for anyone walking dogs near the street, however UPS and USPS trucks may be worse, even when they park on the correct side of the streets.
IMO, the ADP data is quite accurate, they have an exact count within their business, but only for jobs that use their service. However, the ADP data isn’t the whole economy, nor is the ADP data predictive of the Establishment Survey data, which are suspect for many reasons.
So.. how did that ADP report work out for you?
Oh good, actual economics instead of politics mislabeled as economics.
As a result of Fed thesis they have remained in restrictive monetary policy.
At least 100 basis worth of easing is warranted this year.
Initial jobless claims this morning was even weaker then projected.
Fed claims they do not target jobs but that is just another Lie to be told. Otherwise why have any focus on JOLTS
In past an easing cycle getting entered was treated Bullish by markets.
Maybe global economy is falling off the chair in places such as China and that will drag things down.
All up to equities for where this goes.
Bessent is funding Treasury with short term notes so as take pressure off Ten year.
Ten year being key to market lending rates. Easing pressure on Ten year is stimulative to interest rate reduction. Helps housing which will be a major factor once peoples earnings start to replace Debt funding. Rebuilding the Middle Class being a primary long term goal of economic policy.
Who told you the Fed “claims they do not target jobs”? You are very much mistaken.
Powell (and past Fed chairs) regularly talk about their ‘dual’ mandate of looking at both inflation and unemployment (aka, jobs).
The Fed has been commenting consistently for months they are in a ‘wait-and-see’ approach because they don’t know for sure whether Trump’s current policies are more likely to reduce American jobs significantly (so need an interest rate cut) or increase prices (need a rate increase). God forbid if the policies make both happen.
All you have to do is listen to what the Fed says to know what they are thinking and tentatively planning.
Fed continues to denies they use Jobs to dampen inflation. Which remains a Flat out Lie.
They very much watch and use how Job availability balances with Job applicants.
Spend some time understanding JOLTS and what it means when setting policy.
add; By the way there is a meltup in USD going on today based upon
risk.
You’re still confused.
Post one single link that shows the “Fed continues to denies they use Jobs to dampen inflation”.
Like some of your other posts, you post your political opinion and then argue for it with a misunderstanding of economic practice and theory
Are you incapable of understanding how the Fed operates?
They wanted worker availability to job availability ratios back to pre-covid levels.
That has been objective number uno.
Using Job and wage growth as means to suppress consumer demand so as to reign inflation in.
A person has to be oblivious to real world and what goes on.
The Fed will lie to your face rather then touch that third rail admitting the politically un-admittable that they use labor to control inflation. Maybe you have heard of the Phrase animal spirits been around since the 1930’s. Fed uses that to goose the economy and to suppress the economy.
Who do you think they are referring as the depository of animals?
Oh I get it, Fed is just a bunch of really nice people, doing the bestest they can.
So no link to something that backs up your assertion? Got it. You should delete the URLs for the conspiracy sites that assert the Fed is lying to you.
“Turning to the other leg of our dual mandate, inflation has declined sharply from its pandemic highs of mid-2022. It has done so without the kind of painful rise in unemployment that has often accompanied periods of tight monetary policy that are needed to reduce inflation.”
From a Fed Powell speech a few weeks ago: https://www.federalreserve.gov/newsevents/speech/powell20250404a.htm#:~:text=The%20combination%20of%20low%20layoffs,pandemic%20highs%20of%20mid%2D2022.
Powell literally said here tight, purposeful Fed monetary policies can make a painful rise in unemployment, but are necessary to reduce inflation. Everyone understands this.
There is no “third rail” about the impact on labor, there is no “Fed lie”. This is the same set of Fed policies that have been around for decades, including under Trump’s first Presidency and under Biden.
Sounds like you don’t like the policies now that Trump is back in. But you’re still confused about how and why the Fed operates the way it does.
But good luck to you
BTW, here’s a “How we conduct monetary policy” how-to-for-dummies tutorial from the Fed itself for anyone interested: https://www.federalreserve.gov/aboutthefed/fedexplained/monetary-policy.htm#:~:text=The%20Fed%20primarily%20conducts%20monetary,overnight%20reverse%20repurchase%20facility%20rate.
It discusses how jobs/employment are targeted and impacted by Fed interest rate cuts and increases in written, graphical and video format
I think the point is that the Fed was open about their attempt to soften the labor market in order to dampen inflation.
Isn’t “once peoples earnings start to replace Debt funding” a large assumption – that responses to current policies would not appear to support?
Yes it is where all this is headed.
Rebuild middle class implies a middle class which relies upon savings and investments for financial security. Not a former middle class drowning in debt held by Bankers and other financial institutions as it is currently construed.
A complete reversal of what the Globalized economic order has produced.
Think of statement attributed to Jefferson about Bankers.
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered….
I believe that banking institutions are more dangerous to our Liberties then standing armies…. the issuing power should be taken from the banks and restored to the people, to whom it properly belongs”
now consider some of what you have been subjected to in recent Decades.
“You will own nothing and be happy”
“Eat the Bugs”
A debased currency, destruction of Middle class America, unaffordable housing, destruction of the nuclear Family.
These things are not randomly results but direct consequences of what has been imposed by an intentional economic policy.
Central Banks such as Fed are privately held and issued the Federal Reserve note used as the currency of the USA
If you were to google who owns federal reserve as a question there is a convoluted answer about how owning stock in Federal Reserve does not actually mean owning stock in Federal reserve.
therefore make your own call about the Creature from Jekyll Island.
You are looking beyond the headlines.
Richard I agree with most of your analysis, but you’re incorrect about “In past an easing cycle getting entered was treated Bullish by markets.”
The Fed dropping the Fed Funds rate to start a rate-easing cycle has not been bullish for the markets for the past 25 years.
I encourage you to graph the Fed Funds rate since 2000 and compare with S&P500 and recessions. What I see is:
Fed easing that began in 2000 was not bullish. (Dot-Com bubble continued to deflate.)
Fed easing that began in 2007 was not bullish. (Great Recession was not stopped.)
Fed easing in mid-2019 was not bullish. (Market went down anyway.)
Fed easing on March 3, 2020 during the COVID market panic was immediately before the big market panic – definitely not bullish.
Quantitative Easing – money printing – is different, but that’s not what’s in the cards right now.
I agree with your assessment that Fed has been late to take action and economy weakened even while Fed eased. .However there is this idea that Fed Put exists as was done during Covid and during GFC aftermath which was what prompted Buffet to buy near the bottom.
markets are complicated by this and it was not my intention to make an ironclad assessment for how things are going to turn out.
Hopefully this clears somewhat what is a very murky outlook going forward..
Also there is that Trade situation which if it resolves in a successful Businesslike manner will be quite Bullish for markets.
Trump’s bubble of economic unreality is coming close to burstingIn the space of a few hours, Donald Trump went from hailing America’s new “golden age” to warning parents their kids would have fewer toys — and they’d cost more. https://edition.cnn.com/2025/05/01/politics/trump-gdp-economy-golden-age-recession-perception/index.html
It won’t just be toys, it was a tacit admission that there will be empty shelves across America in 6 to 8 weeks thru Christmas.
The core mistake Trump made was in using a shotgun approach in trying to bring everything back. Who here wants to work in shoe or textile factory?
He should have focused on future advances items like pharmaceuticals, microchips, advanced materials, etc. But you can’t expect much advanced thinking from a hillbilly administration.
Perhaps it will be used as cover for the masses who are no longer able to shower family and friends with presents – the store was out of stock, otherwise I would have purchased this thing that you may have wanted. Surely that is higher-level thinking 😉
It is curious that there continues to be so much federal support/protection for something like domestic sugar production whereas other industries, such as the ones you mentioned, have been off-shored. Tradition, I suppose.
This is an issue many people have with tariffs; it is way too easy to curry favor with politicians if you’re connected.
I think you’re right. Why are we protecting domestic sugar? It makes no sense for American consumers of sugar to buy it from more expensively sourced sugar beets from middle America, but those farmers are sure happy about it with the expansive tariff-rate quota system the US puts on foreign producers of cheap sugar like Brazil.
I understand the concept why some people want tariffs. But the reality is someone (like Trump or the current or future Congress) will decide which industries and companies get the tariff protection. And those ‘rules’ must be decided politically, so it opens the door for massive favoritism.
‘Everyone’ wants jobs to be on-shored but no one wants their own business to be personally impacted by the policies ‘required’ to do that; shocker
https://www.cnbc.com/2025/05/01/trump-tariffs-recession-chamber-of-commerce.html
“He should have focused on future advances items like pharmaceuticals, microchips, advanced materials, etc.”
That’s neoliberal thinking. Unfortunately not everyone can be trained to that level of performance in abstract thinking. Service jobs are by nature limited, how many haircuts do you need in a year?
So do you want to bring back shoes and textiles, or pony up the extra taxes to pay for a universal basic income? The current Krugman approved system isn’t working very well. Neither is Mish’s claim that some sort of new jobs will just appear.
If there is any surprise in any of this it’s that the US economy is even more hollowed out than we thought.
Krugman can always “detail” Teslas to increase the GDP.
All of those things I mentioned have ancillary non abstract thinking jobs. A pharmaceutical office and lab still needs janitors, new labs need construction workers, etc. Same for microchip labs, etc.
There is no way America will compete with China on shoes and t-shirts.
Empty shelves until American manufacturing kicks then. Frankly China’s only advantage is that their factories can dump their waste into the rivers and forget about it. That is not a hyperbole but a fact of how manufacturing costs remain low in China. Something has to give and it’s the environment, the workers and people living around those factories. We did the same thing in the US before so we know how it works.
Your assertions about China could be true. So don’t buy their products, and have a moral superiority (or moral sentiment, aka Adam Smith).
But why make that choice for others by political tariff rules?
BTW, yes the US did do that historically, and we had horrible environmental and workplace conditions back then. Do you really think we can get back to that level of manufacturing jobs with labor (and not automation) without the environmental and bad work environment?