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If you strip out all the bad stuff from the first quarter GDP figures released Wednesday, the numbers are actually solid.
At least, that’s how some economists and commentators taking a closer look at the estimate of first quarter US gross domestic product saw things.
On the surface, captured in arresting headlines from US news outlets across the country, the economy contracted, registering the first GDP pullback in three years. More optimistic observers digging beneath the top layer of findings see reasons for hope.
The question we don’t know the answer to is which version will be “right” going forward.
“GDP is backward-looking but there was some good news as real final sales to private domestic purchasers, the engine of the economy, posted a decent gain,” Oxford Economics’ chief US economist Ryan Sweet wrote in a note to clients Wednesday.
Wednesday’s 0.3% annualized decline in GDP was driven by a surge in imports, as companies front-loaded orders to lock in lower prices ahead of the anticipated tariffs from the Trump administration. Imports, which increased at an annualized rate of 41.3% in the first quarter, are a subtraction to growth in the calculation of GDP and pulled the figure down by 5 percentage points for the quarter.
And just as corporate earnings and sentiment surveys have offered two different perspectives of the American consumer — simultaneously cautious and resilient — so too does the latest GDP data tell two stories about tariffs.
One says the domestic economy is functioning mostly fine and can withstand this disruption; another reading suggests that a chunk of America’s economic engine spent the last quarter in a consumption-fueled panic to get ahead of the levies.
The White House advisers noted how the quirky arithmetic, if interpreted differently, could tell a positive story.
“That’s the best negative print I have ever seen in my life. And the markets need to look beneath the surface of that,” said Peter Navarro, senior counselor to the president for trade and manufacturing, in an interview with CNBC Wednesday. “When you strip out inventories and the negative effects of the surge in imports because of the tariffs, you had 3% growth,” he said. “So we really like where we’re at now.”
All three major indexes sank following the release of the GDP data, which was accompanied by a reading of higher inflation. Soft labor market data released just minutes before the GDP numbers also added to investor concern. The president himself weighed in on the reaction, pinning recent weakness on his predecessor.
