First quarter GDP falls on big increase in imports – The Daily Tearsheet

Vital Statistics:

Stocks are lower after some weaker-than-expected economic data. Bonds and MBS are flat.

First quarter GDP fell 0.3% which was lower than the 0.2% Street expectation. The decrease was attributable to a larger-than-expected increase in imports. Consumer spending and investment were additions to GDP while government spending was modestly negative and imports were a big drag.

It looks like the GDP numbers were highly influenced by tariffs: the big increase in investment was primarily attributable to inventory build, while the increase in imports (from $4.1T to $4.6T) was probably driven by businesses trying to get ahead of tariffs. Note these are annualized numbers.

The drop in government spending was primarily attributable to defense.

More evidence the labor market is softening: Private sector employment rose by 62,000 last month, according to the ADP Employment Report. “Unease is the word of the day. Employers are trying to reconcile policy and consumer uncertainty with a run of mostly positive economic data,” said Dr. Nela Richardson, chief economist, ADP. “It can be difficult to make hiring decisions in such an environment.”

We saw wages increase 4.5% on average, a slight deceleration from March. Leisure / hospitality, construction, and finance saw the biggest increases in payrolls, while education / health and IT fell.

The Street is looking for 125k private payrolls on Friday, so this report portends a miss.

Consumer confidence fell in April, according to the Conference Board. The Present Situation index was marginally lower, but the expectations index hit a 13 year low. “Consumer confidence declined for a fifth consecutive month in April, falling to levels not seen since the onset of the COVID pandemic,” said Stephanie Guichard, Senior Economist, Global Indicators at The Conference Board. “The decline was largely driven by consumers’ expectations. The three expectation components—business conditions, employment prospects, and future income—all deteriorated sharply, reflecting pervasive pessimism about the future. Notably, the share of consumers expecting fewer jobs in the next six months (32.1%) was nearly as high as in April 2009, in the middle of the Great Recession. In addition, expectations about future income prospects turned clearly negative for the first time in five years, suggesting that concerns about the economy have now spread to consumers worrying about their own personal situations. However, consumers’ views of the present have held up, containing the overall decline in the Index.”

The view of current business conditions actually improved, however consumer views of the current labor market were lower. The conference board index comports with the University of Michigan numbers. The stock market decline is certainly weighing on sentiment, as is the uncertainty over tariffs.

Job openings fell to 7.2 million in March, according to BLS. February’s number was revised downward to 7.5 million. The quits rate ticked up to 2.1%, which was flat on a year-over-year basis. Job openings shot up in the aftermath of the COVID pandemic and began to fall starting in 2022. We are now almost back to pre-pandemic levels.