The GDP nowcast plunged from +2.3% to -1.5% largely on tariff distortions. I subtract the tariff impact for a much better estimate. 
Here’s a Statement from Pat Higgins, creator of GDPNow.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -1.5 percent on February 28, down from 2.3 percent on February 19. After recent releases from the US Bureau of Economic Analysis and the US Census Bureau, the nowcast of the contribution of net exports to first-quarter real GDP growth fell from -0.41 percentage points to -3.70 percentage points while the nowcast of first-quarter real personal consumption expenditures growth fell from 2.3 percent to 1.3 percent.
Percentage Point Change in Net Contributions to GDP from Feb 26 to Feb 28
- PCE Goods from -0.12 PP to -0.10 PP (+0.02)
- PCE Services from +1.53 PP to +0.87 PP (-0.66)
- Exports from +0.34 PP to 0.02 PP (-0.32)
- Net Exports from -0.41 to -3.70 (-2.99)
- Gross Private Domestic Investment (GDPI) from +0.84 PP to +1.02 PP (+0.18)
PCE services shows substantial weakening of consumer spending on services unrelated to trade distortions.
Nonresidential GPDI, up 0.18 PP, accounted for all of the total GDPI improvement.
Factoring Out Imports
If we remove the impact of imports, the Nowcast would be ~+1.50+- instead of -1.50. That’s a decline of 0.80 PP from the previous forecast.
Alternatively, note CPE Services -0.66, Exports -0.32, offset by GDPI +0.18, net -0.80 PP.
It’s likely a bit worse because my calculation subtracts nothing for imports. So, adjust ~+1.50+- to the downside. To make a stab, ~+1.30.
Real Final Sales
Finally, the important number is Real Final Sales not the baseline forecast. The difference between the two is Change In Private Inventory (CIPI) that nets to zero over time.
RFS is -1.9 percent vs the base forecast of -1.5 percent. Ignoring imports as before, RSF would be ~+1.10+- instead of -1.90.
To make a stab, ~+0.90 down from +2.3 percent.
Conclusion
It’s a serious mistake to entirely discount this plunge as solely based on tariff front running.
Related Posts
February 28, 2025: In Scramble to Beat Tariffs, Trade Deficit Soars by Amazing 25 Percent
The advance rush to beat tariffs hugely distorted trade data in January.
February 26, 2025: Trump’s Tariffs Will Increase the Cost of a Pickup Truck by $8,000.
Trump says it’s full speed ahead with tariffs. It will cost US jobs.
February 27, 2025: Another 10 Percent Increase in Tariffs on China, 25 Percent on the EU
Trump will hike Tariffs on China by 10 percent, the EU with 25 percent, but Canada and Mexico increases unknown.
Ryan asks “Mish. If imports were front running tariffs in January doesn’t that mean January was artificially boosted making the February drop a wash?”
Very Good Question
It’s more complicated than what you suggest because of gold. I will comment on that later this weekend or perhaps Monday. But yes, there will be as swing. And No, I don’t no how the GDP model will react or overreact to that swing. And I don’t know if the flow of gold will continue.
Statistic collection seems to have become shoddy these last few years to a surprising extent which of course makes their interpretation even more problematic. Do you think the way we collect statistics needs a big overhaul and if you do then do you see a role the new government can play?
We’re really getting to the point where the data & or its interpretation is “blowing in the political winds”. Like I said above, DOGE needs to look into these nimrods. The timing of this tariffs distortions is simply stunning.
Definitely not intuitive so look forward to your explanation.
Mish, I gotta know should I put my SPY puts down now or later
I truly don’t have a clue
Biden’s shit economy.
Well, isn’t that interesting. Miraculously, just as Trump is taking over, the always trustworthy GDPNow shoots down to recession level, big time!
You can’t make this stuff up. Tariff distortions or not, DOGE needs to fire these people.
Feb [1M] Dow is an inside bar and a doji. It might drop to July high, before rising to
an all time high. In Q3 the Dow might start its descent, before landing down below in
recession territory 2026/2027. Its an option. [1W] QQQ and NQ diverge.
Mish, will this data have any impact on tariff implementation?
GDP without government and private debt is a meaningless number. A measure invented before financialization to the hilt could be harmfully misleading if meticulously followed.
We have no idea how loosely the powers in charge interpret these meaningless numbers.
A smart formula to measure the economy is badly wanted.
Can Trump crash the economy in just a couple of months? I guess we shall see!
Anything can happen …and it probably will!
Short-term money flows can move in the opposite direction of long-term money flows thus reducing R-gDp while at the same time increasing inflation.
But short-term monetary flows are not yet in negative territory.
Can 1M SPX reach 7,000: 2,500 x 1,6182 ==> 4,000 + 3,700 = 7,700 by the end of the Trump/Vance decade. Can it go straight up, after a minor correction. without recession : yes !
Between 2025 high and 2026 low SPX might drop from the 6,300/6,400 area to the 3,700/3,800 area. Since 2009 low SPX was up 5,630 from 666 to 6,300. A drop of 2,500 is: 2500/5630= 46%. SPX can easily exceed the 2025 high. In 2006 SPX can enter recession territory for the first time since Feb 2009. For entertainment purposes only.
Has the Proverbial SHIT HIT THE FAN in the MOST AMAZINGLY TIMELY MOMENT: the year that the Democrats are out and have sewn this misery upon the world?
HOW CAN THEY TIME THIS SO PERFECTLY? OH, yeah: THEY LIED CONTINUOUSLY FOR THEIR ENTIRE RUN, lapping HONEY ON TO SHIT and convincing us that the foul taste was NOT ANIMAL DROPPING, but a delicious Hors d’oeuvres.
https://www.currentmarketvaluation.com/
Scroll down the page and look at EVERY CHART on the page.
Mish, what’s going on ???
About the only significant positive economic report lately is what DOGE is doing, and Democrats with some Republicans are doing everything they can to upend it. I really do not see anything but stagflation for the near term and potentially the long term unless Congress gets their poop in a group and goes along whole heartedly with efforts to improve government efficiency in addition to downsizing the whole of government. We are long past growing or taxing our way from debt troubles.
serious question Mish. If imports were front running tariffs in january doesn’t that mean january was artificially boosted making the February drop a wash?
Very Good Question
It’s more complicated than what you suggest because of gold. I will comment on that later this weekend or perhaps Monday. But yes, there will be as swing. And No, I don’t no how the GDP model will react or overreact to that swing. And I don’t know if the flow of gold will continue.
Danish grocery chain to distinguish European from US goodsFebruary 27, 2025
Saying it is promoting European products rather than boycotting US ones, a Danish supermarket chain has a special label for goods from Europe. The move comes as many seek to protest Trump’s aim to control Greenland. https://www.dw.com/en/danish-chain-distinguishes-european-from-us-goods-greenland-trump/a-71773488
https://www.theguardian.com/world/2024/mar/04/greenlandic-women-sue-danish-state-for-contraceptive-violation-coil
In France they have labels for food from France, then the EU and then everybody else. They really push French agriculture to the exclusion of others even those withing the union.
An embargo on Marisk shipping can cure that.
It’s a bit weird that the forecast does not figure in a change in inventory component. Temporary surges in imports that go into inventories in high frequency data must be happening more than once in a decade. It would also be weird if the stagflationary shock from Trump’s tariff stupidity (TTS) would show up already in 2025.Q1.