President Donald Trump's Tariff Turmoil (TTT) is certainly upsetting global trade relations and confusing financial markets. This is all having an effect on the US economy, as evidenced by today's Q1 GDP report. The S&P 500 fell sharply in the morning when the Bureau of Labor Statistics (BLS) reported that real GDP fell 0.3% (saar) (chart). By the end of the day, the S&P 500 was up slightly from Tuesday's close.
On closer inspection, there was quite a bit of strength in the GDP report. Indeed, real final sales to private domestic purchasers rose 3.0% during the quarter!
Consider the following:
(1) Imports. Imports of good and services in real GDP soared during Q1 as wholesalers and retailers scrambled to front-run tariffs (chart). GDP is the broadest measure of gross domestic production. Imports are subtracted from GDP.
(2) Inventories. The jump in imports was partly offset by a big increase of $140.1 billion (saar) in inventory investment during Q1 (chart). The increase was led by wholesalers’ adding $111.2 billion (saar) to their inventories, while nonauto retailers added $24.4 billion. Manufacturing inventories edged up very slightly. Retail auto inventories dropped for a second quarter in a row. Consumers are crowding auto dealerships to buy new and used motor vehicles before tariffs boost their prices.
