Tariffs drive Q1 GDP negative…
Lies, damn lies and statistics…
“We’re going to monetize the most valuable asset of the United States”…
Dear Reader,
The Bureau of Economic (Mis)Analysis is stabled within the United States Department of Commerce.
Yesterday the august bureau dispatched its findings on the Q1 2025 gross domestic product.
Those findings proved negative.
The gross domestic product contracted at an annualized 0.3% in the year’s opening quarter — the first quarterly contraction in precisely three years.
A Dow Jones survey of economists surveyed had projected a 0.4% expansion.
It’s All Trump’s Fault!
We are told the president’s pending tariffs bear central responsibility.
Overseas manufacturers have been frantic to land their wares upon American shores ahead of the tariffs.
And in the official telling, imports subtract from the gross domestic product.
Hence, a 0.3% first-quarter contraction. CNBC:
Imports soared 41.3% for the quarter, driven by a 50.9% increase in goods, for the biggest growth outside the Covid pandemic since 1974. Imports subtract from GDP… Imports took more than 5 percentage points off the headline reading.
Imports do not truly contract the gross domestic product. Yet I let it pass for now.
The Government Didn’t Spend Enough!
Another source of first-quarter subtraction — again, in the official telling — is reduced government expenditures.
Government spending came in at a negative 0.25%.
Yet how can government spending contribute even the leanest cent to the gross domestic product?
We must recall that government lacks all resources. It must first pluck them from the private economy, directly or indirectly.
Imagine a parasite with its fangs sunk into a host. You have just imagined a government’s relationship to society.
Now imagine the creature spitting out its sanguinary contents after a good, hard guzzle.
The greater the quantity of blood it puts out — concludes the government statistician — the greater the contribution to the gross domestic product.
Should we then incite the parasite to bleed its host white? Think of the economic contribution!
Yet to proceed…
Silver Linings
If you seek a silver edging in yesterday’s gray, here you have one:
The Federal Reserve’s Atlanta outpost expected worse.
Its GDPNow forecasting implement had divined a 2.7% first-quarter contraction.
Thus the reported 0.3% contraction represents, from this perspective, a “beat.”
Alternatively, it furnishes additional evidence that the Federal Reserve gazes into very, very murky crystal.
Here is an additional silver edging:
Personal consumption increased at an annualized 1.8% rate. A survey of economists had wagered upon a 1.2% increase.
Is Bad News Actually Good News?
Concludes Zero Hedge:
The GDP number was much stronger than expected, in fact it was a whopping 2.4% higher than the now laughable AtlantaFed GDP forecast, and if anything this positions the Trump admin for a surprise bounce in Q2 and/or Q3 when all the outlier prints from Q1 are reversed.
Just so. Yet I cannot conclude my observations on yesterday’s report without inflation — and the Federal Reserve.
What’s the Fed Going to Do?
Here, CNBC shows you why yesterday’s report crams Mr. Powell and mates into a lovely pickle jar:
The report provided cross signals for the Federal Reserve ahead of its policy meeting next week. While the negative growth number might push the central bank to consider lowering interest rates, inflation readings could give policymakers pause.
The personal consumption expenditures price index, the Fed’s preferred inflation measure, posted a 3.6% gain for the quarter, up sharply from the 2.4% increase in Q4. Excluding food and energy, core PCE was up 3.5%. Fed officials consider the core reading a better gauge of long-term trends.
A related reading known as the chain-weighted price index, which adjusts for changes in consumer behavior and other factors, rose 3.7%, well above the 3% estimate.
The market presently gives 95% odds that the Federal Reserve will sit upon their fidgeting hands next week… and hold rates steady.
The market likewise gives 63% odds that the Federal Reserve will free its hands in June — and enact a 25-basis point rate reduction.
Freedom Financial News contributor Jim Rickards argues that the Federal Reserve does not like to jolt Wall Street.
I therefore expect the Federal Reserve to fall in line with Wall Street expectations.
Lies, Damn Lies and Statistics
I conclude by expressing skepticism of yesterday’s economic data.
That is because numbers often conceal more than they reveal.
They often spin wondrous tales — and tell fantastic lies.
Like a Hollywood movie set… a false set of teeth… or a toupee… the numbers are not often as they appear.
That is true, especially, of government-supplied statistical numbers.
There are lies, damn lies and statistics, as runs the common expression.
I request that government merely confine itself to lies and to damned lies.
These lies I can abide.
Its statistical lies I cannot.
Brian Maher
for Freedom Financial News