Don’t Worry About GDP Right Now: Wait for Normalization

There was good and bad news in today’s GDP report. President Trump said the tariffs are stirring investments and that is what the statistics show.

The bad news is Q1 GDP printed -0.3%, worse than the -0.2% expected and the first negative print since Q1 2022, when the economy was reportedly in a recession.

According to Zero Hedge, the good news is that the drop was supposed to be much worse. Indeed, if one examines the components of today’s GDP print, one finds that the number was unexpectedly strong, if one strips out the two negative components: net trade and government.

Investments are exploding. We knew tariffs would be a negative for a time, but that will change as investments come into the US. Now Congress has to pass that big, beautiful bill. Snails are speedy next to them.

Q1 GDP declines 0.3% SAAR as massive front running of tariffs caused imports to explode 41.3%, dragging GDP down by -5.03pp; gov’t declined 1.4% in 1st drop since ’22; meanwhile, investment exploded 21.9% higher – despite the headline number, this is a surprisingly good report: pic.twitter.com/JTSAi7ZsfI

— E.J. Antoni, Ph.D. (@RealEJAntoni) April 30, 2025

EJ Antoni points out that consumer spending greatly outpaced government purchases since 2022.

Consumer spending outpaced gov’t purchases in today’s GDP report by 3.2 percentage points – that’s the best number since Q2 ’22, which was also the last time gov’t purchases declined; this is fantastic news: pic.twitter.com/2DOJrthL4E

— E.J. Antoni, Ph.D. (@RealEJAntoni) April 30, 2025

According to Zero Hedge, as shown in the chart below, Q1 GDP comprises the following components:

• Personal Consumption 1.21%, down from 2.70%, but translating into an annualized Personal Consumption print of 1.8%, much higher than the 1.2% expected
• Fixed investment jumped to 1.34%, up from -0.2% and the highest since Q2 2023, as the BEA finally starts tracking data center investment correctly
• Change in private inventories surged 2.25%, as expected, on the pre-tariff restocking; this number was up from a -0.84% drop last quarter and is expected to reverse in coming quarters as inventories are sold off.
• Government spending was a negative-0.25 %, the first negative print for Joe Biden’s favorite “plug” to push GDP higher since 2022.
• Finally, and most importantly, net trade (exports less imports) was a whopping 4.830% hit to the final GDP number, a 5% swing from the +0.26% contribution in Q4. This was entirely the result of soaring imports (of which gold was about half) in Q1 which hit GDP by a near record 5.03%. Just like inventories, this number will now reverse in coming quarters as tariff frontrunning ends and is reversed.

GDP was negative because of only two components:

– Trade/Imports subtracted 4.83% on tariff frontrunning
– Government subtracted 0.25%, first negative govt “contribution” since 2022 pic.twitter.com/6Ng0qyQCZ5

— zerohedge (@zerohedge) April 30, 2025

The way to rebuild the industrial base in the United States is by creating the economic conditions that incentivizes private industry to invest here.

In the first 100 days of the Trump Administration, we’ve been able to attract more capital to invest in the U.S. than the entire… pic.twitter.com/sOFpy0iQGT

— Deputy Secretary Michael Faulkender (@TreasuryDepSec) April 29, 2025

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