22 hours Ago By Reuters
WASHINGTON, April 30 (Reuters) - The U.S. economy likely stalled or even contracted in the first quarter, swamped by a deluge of imported goods by businesses eager to avoid higher costs, underscoring the disruptive nature of President Donald Trump's often chaotic tariff policy.
The Commerce Department's advance gross domestic product (GDP) report on Wednesday would, however, grossly exaggerate the economy's dimming prospects. Coinciding with Trump's 100 days in office, it will reinforce Americans' growing disapproval of his handling of the economy thus far. Trump swept to victory last November on voter angst over the economy, especially inflation.
Sign up here. Consumer confidence is near five-year lows and business sentiment has tanked, while airlines have pulled their 2025 financial forecasts, citing uncertainty over spending on nonessential travel because of tariffs, which economists have warned will raise costs for companies and households. "The trade shock now looms large, overshadowing everything else that the White House has attempted to accomplish," said Joe Brusuelas, chief economist at RSM US.
"The fact that we've gone from trade shock to financial shock to a possible recession in less than 100 days ought to give pause to those who want to continue down this road of tariffs." A Reuters survey of economists forecast GDP likely increased at a 0.3% annualized rate last quarter, which would be the slowest pace since the second quarter of 2022.
But the survey was concluded before data on Tuesday showed the goods trade deficit surged to an all-time high in March amid record imports, which prompted economists to sharply downgrade their GDP estimates. Economists estimated the trade deficit subtracted as much as 1.9 percentage points from GDP last quarter.
Goldman Sachs forecast GDP contracted at a 0.8% rate. The economy grew at a 2.
4% rate in the fourth quarter. Some economists warned against placing too much weight on the GDP number, arguing that an unusually large amount of non-monetary gold had accounted for some of the jump in imports. Adding to uncertainty over the forecast, the Atlanta Federal Reserve's model forecast GDP plunging at a 1.
5% pace after accounting for imports and exports of gold. But the New York Fed's staff projected GDP increasing at a 2.6% rate.
Others argued that the data did not change the narrative of a struggling economy because of uncertainty due to tariffs. "There isn't any real positives to take from the report we expect," said Matt Colyar, an economist at Moody's Analytics. "The kind of capricious way that these policies have been announced, it reaches everybody, everybody knows about it right off the bat, and they're rightly calculating that the stuff that they buy is going to go up more.
" Prices are forecast to have increased last quarter and continue to do so through the year. The Personal Consumption Expenditures price index excluding the volatile food and energy components is estimated to have increased at a 3.3% rate, which would be an acceleration from the October-December's 2.
6% pace. Economists expect the Federal Reserve to resume cutting interest rates at some point this year. Trump on Tuesday softened the blow of his auto tariffs through an executive order mixing credits with relief from other levies on parts and materials.
A 145% tariff on Chinese goods, which unleashed a trade war between Washington and Beijing, remains in place, as do an array of other import duties. Consumer spending, which accounts for more than two-thirds of the economy, is expected to have slowed down significantly. Most households pulled forward spending to avoid higher prices.
With the labor market also cooling, consumers are mostly saving. Despite the surge in imports, inventory accumulation has remained moderate, which buttressed economists' argument that the GDP number should be taken with a grain of salt as the wider trade deficit was driven by gold imports. Some encouraged investors to focus on final sales to private domestic purchasers, which exclude trade, inventories and government spending, to get a better pulse of the economy.
Others, however, saw this traditional measure of domestic demand as also having been distorted by tariffs. "However, consumption spending was clearly inflated due to tariff-frontrunning, so the growth in spending is likely to overstate the growth in domestic output," said Lou Crandall, chief economist at Wrightson ICAP. "The potential measurement slippages in the inventory and net export numbers will make it hard to say exactly how large that overstatement might be.
" Reporting by Lucia Mutikani; Editing by Andrea Ricci Our Standards: The Thomson Reuters Trust Principles. , opens new tab.
