The GDP nowcast plunged from +2.3% to -1.5% largely on tariff distortions. I subtract the tariff impact for a much better estimate.
Here’s a Statement from Pat Higgins, creator of GDPNow.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -1.5 percent on February 28, down from 2.3 percent on February 19. After recent releases from the US Bureau of Economic Analysis and the US Census Bureau, the nowcast of the contribution of net exports to first-quarter real GDP growth fell from -0.41 percentage points to -3.70 percentage points while the nowcast of first-quarter real personal consumption expenditures growth fell from 2.3 percent to 1.3 percent.
Percentage Point Change in Net Contributions to GDP from Feb 26 to Feb 28
- PCE Goods from -0.12 PP to -0.10 PP (+0.02)
- PCE Services from +1.53 PP to +0.87 PP (-0.66)
- Exports from +0.34 PP to 0.02 PP (-0.32)
- Net Exports from -0.41 to -3.70 (-2.99)
- Gross Private Domestic Investment (GDPI) from +0.84 PP to +1.02 PP (+0.18)
PCE services shows substantial weakening of consumer spending on services unrelated to trade distortions.
Nonresidential GPDI, up 0.18 PP, accounted for all of the total GDPI improvement.
Factoring Out Imports
If we remove the impact of imports, the Nowcast would be ~+1.50+- instead of -1.50. That’s a decline of 0.80 PP from the previous forecast.
Alternatively, note CPE Services -0.66, Exports -0.32, offset by GDPI +0.18, net -0.80 PP.
It’s likely a bit worse because my calculation subtracts nothing for imports. So, adjust ~+1.50+- to the downside. To make a stab, ~+1.30.
Real Final Sales
Finally, the important number is Real Final Sales not the baseline forecast. The difference between the two is Change In Private Inventory (CIPI) that nets to zero over time.
RFS is -1.9 percent vs the base forecast of -1.5 percent. Ignoring imports as before, RSF would be ~+1.10+- instead of -1.90.
To make a stab, ~+0.90 down from +2.3 percent.
Conclusion
It’s a serious mistake to entirely discount this plunge as solely based on tariff front running.
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