I thought it would be interesting to drill down into the Q1 2025 GDP numbers a bit more. So, I broke out the key components of real GDP and their quarter/quarter annualized growth % and ppt contribution to real gdp since Q1 2024.
|Component|Q2 2024|Q3 2024|Q4 2024|Q1 2025|
|:-|:-|:-|:-|:-|
|**Real GDP**|2.8 % / 2.8 ppt|2.8 % / 2.8 ppt|2.4 % / 2.4 ppt|–0.3 % / –0.3 ppt|
|**Personal Consumption Expenditures**|2.8 % / 1.90 ppt|3.7 % / 2.48 ppt|4.0 % / 2.70 ppt|1.8 % / 1.21 ppt|
|**Fixed Investment**|2.3 % / 0.42 ppt|2.1 % / 0.38 ppt|–1.1 % / –0.20 ppt|7.8 % / 1.34 ppt|
|**Change in Private Inventories**|— / 1.05 ppt|— / –0.22 ppt|— / –0.84 ppt|— / 2.25 ppt|
|**Net Exports (X–M)**|— / –0.90 ppt|— / –0.43 ppt|— / 0.26 ppt|— / –4.83 ppt|
|**Government Consumption & Investment**|3.1 % / 0.52 ppt|5.1 % / 0.86 ppt|3.1 % / 0.52 ppt|–1.4 % / –0.25 ppt|
A couple of thoughts by component and I would welcome feedback:
1.) The largest GDP component, PCE, slowed to just 1.8% annualized growth in Q1 - it's worst quarter since Q2 2023. With PCE accounting for roughly 70% of real GDP, this is a major warning sign. It's hard to imagine the looming tariffs helping this number next quarter.
2.) Fixed investment surged by almost 8% driven by equipment purchases. I think an argument can be made a decent amount of this was getting ahead of the tariffs (although you can't discount impact of investment of AI/semiconductors) and will unwind in the coming quarters.
3.) Changes in Private Inventory contributed 2.25 pts. Again, probably a good bit tariff related and will unwind in the coming quarters creating another headwind.
4.) Net Exports was indeed the major component dragging down Q1 2025 and will provide "upside" when it reverses in the following quarters.
5.) Gov't Consumption % Investment unexpectedly fell, but is anticipated to rebound next quarter providing upside to Q2 GDP
The key takeaways for me:
\* Consumer spending has already markedly dropped off (ex inflation) and this doesn't even include the impact of tariffs yet.
\* The import / rushed orders impact of -4.8 pts might have been overstated / simplified by just looking at Net Exports. Real GDP benefited by commiserate increases in Fixed Investment / Change in Private Inventory which totaled 3.6 pts. The question is how much of this was directly related to tariffs.