Recession Watch

On Wednesday we learned that in the first quarter of 2025 the U.S. economy contracted by 0.3% on an annualized basis marking the first decline in nearly three years.

 

This downturn was primarily driven by a record trade deficit, as businesses front loaded imports ahead of new tariffs implemented by President Trump, which subtracted 4.8 percentage points from GDP. Consumer spending slowed to a 1.8% increase, influenced by factors such as harsh winter weather and post-holiday spending lulls.

 

While business investment remained strong due to pre-tariff stockpiling, government spending declined amid federal budget cuts and layoffs. Inflation rose to 3.6%, raising concerns about potential stagflation.

 

The Federal Reserve is expected to hold interest rates steady to balance inflation control with slowing growth. Analysts warn of a higher risk of recession if trade policies remain unchanged and domestic activity weakens.

 

A few thoughts:

• There will be revisions to the GDP numbers.

• The US economy is both dynamic and resilient.  Universally-accepted evidence of a recession is two consecutive quarters of negative growth.

• We have yet to feel the full impact of the White House tax increases on trade.

This graph is a screenshot from a Wednesday morning podcast. The precipitous drop in container traffic implies we’ll feel supply chain disruptions beginning sometime in June.