Today was a big day for our economy, as first quarter Gross Domestic Product (GDP) was released, and the headline is very bad: US economic growth declined for the first time since 2022. Expectations were for a lukewarm 0.4 percent quarterly GDP growth, and it came in at negative 0.3 percent. This is simultaneously worse and better than it looks, as indicated by the stock market opening down over two percent on the news and closing slightly in the green (it also indicates how much stocks have become like crypto in how hopium-dependent they are and how much they are setting themselves up for Trump to pull the rug out from under them).
This very predictable consumer behavior that anyone with a cursory understanding of the difference between big and small numbers and the nature of linear time could grasp is responsible for negative first quarter GDP, and the fact that GDP only contracted by 0.3 percent is “a relatively solid underlying report when it comes to demand” according to Shannon Grein, an economist at Wells Fargo. It sounds weird to say, but it’s true: this negative GDP print actually proved that the US economy was in pretty decent shape as of the end of March.
Now for the bad news. This GDP data doesn’t include April, the month that the tariffs went into place. The implication of the net exports figure, combined with every consumer confidence survey in recessionary territory strongly suggests that this consumption will not last and the real concerns are going to begin with the second quarter data released this summer. The widespread fear on Wall Street today is that the negative 0.3 percent growth is something of a harbinger of doom more than a description of the first quarter.
This is a very strange GDP report unlike any other in our history, and it is difficult to come to any firm conclusions about what will happen going forward, other than US businesses and consumers are very clearly preparing for a world where everything will be more expensive. Mark Zandi, chief economist at Moody’s told the Wall Street Journal that the April fall in consumer confidence “doesn’t lend confidence that they’re going to hang tough here,” and that “if the administration can’t find an off-ramp on the tariffs soon…then I think we’re going to see a lot more negative GDP numbers dead ahead, and ultimately job losses.”
There is already some indication that the Trump administration sees the shitshow they have created for themselves. It is not coming from American state television, however, but Chinese state television. An account associated with Chinese state television on Weibo wrote (via Google translation) “Tan Zhu learned from a source that recently, the US side has taken the initiative to contact the Chinese side through various channels, hoping to hold talks with the Chinese side on the tariff issue.” They also allege that “from the point of view of negotiations, at present, the United States must be the more anxious side” and that “there is no need for China to negotiate with the United States before the United States has made substantive moves.”
All the caveats with quoting propaganda outlets aside, their allegation that the US is anxious is backed up by this GDP report and collapsing consumer confidence, Trump repeatedly claiming to be negotiating with China despite reports to the contrary, as well as statements from Trump like “somebody said, ‘oh the shelves are gonna be open.’ Well, maybe the children will have two dolls instead of thirty dolls, and maybe the two dolls will cost a couple of bucks more.” The March inflation report was the best in five years, yet the market treated it as bad news due to fears that it indicated slowing growth. Companies across the economic spectrum are pulling or cutting their forward guidance on earnings expectations later this year, citing the uncertainty coming from the tariffs. There is an immense amount of pressure coming from countless billion and trillion-dollar firms to gain some kind of clarity on what the economy will look like going forward, with nothing but vague platitudes and promises emanating from Trump.
China’s economy is weakening, and they are being harmed by this trade war too as their export orders plunged this past quarter, but as of right now, the United States is not in a position of negotiating strength. Container shipping across the Pacific has collapsed, as even in Trump’s own rosiest scenarios where he gets China to bend the knee by the end of his 90 day so-called pause, he has still baked in 90-plus days of economic weakness where firms are not buying as much from China as they did before in expectation that they can buy their products cheaper in the future. He has to make a deal or else the economic figures are very clear on where this is headed and it’s nowhere good.
Uncertainty has been the Federal Reserve’s favored buzzword ever since Trump was elected, and while it is an unsatisfying answer, it is one of the few certain ones we have at this point. Maybe the hopium dealers on Wall Street are right and Trump caves entirely and we’re back to the Biden-era status quo in 90 days. Maybe Trump only caves a little bit and keeps his ten percent universal tariff that still is a massive upheaval in global trade where the highest tariffs were around three percent before. Or maybe president deals is going to remain steadfast in his wrongheaded belief he has demonstrated for 40-plus years that trade deficits are inherently bad and he will keep this de facto embargo in place on Chinese goods that is mathematically guaranteed to crash the economy at a certain point. We just don’t know what this doofus is going to do on any given day, and that’s really what this negative GDP report is all about.
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