Source: Economics Group of Wells Fargo Bank, N.A.
Summary
The U.S. economy is at a greater risk of recession now than it was a month ago, but this 0.3% contraction in Q1 GDP is not the start of one. It reflects instead the sudden change in trade policy that culminated in the biggest drag from net exports in data going back more than a half-century.
Economy Falls into the Trade Gap
The U.S. economy contracted at a 0.3% annualized rate in the first quarter (chart). If you look at this development through the lens of businesses and households trying to get ahead of the tariffs, many of the big pieces of today’s report fall into line. For starters, trade lopped 4.8 percentage points off of first quarter growth. It is rare for a drag that large to come from a comparatively small component of GDP such as net exports. In fact, we haven’t seen a drag of this size in data going back to the late 1940s (chart). This is not because trade activity was grinding to a halt, but rather because imports shot up as firms tried to pull forward needed industrial supplies and retailers stocked their shelves with consumer goods.