Widespread expectations of higher tariffs have boosted goods imports, as seen in preliminary data for January: +$32 billion MoM; +24.1% YoY – see Figures 1, 2 and 3.
Increased imports have upended Q1 2025 GDP – the Atlanta GDP tracker is now negative at -1.5% – but that is due to a negative contribution from net exports of as much as 3.7 percentage points (the contribution was only -0.4 on 26 February) – see Table 1.
While net exports can be ignored, the same cannot be said for weaker PCE consumer spending… where the PCE contribution to GDP growth in Q1 2025 fell from +2.13 pp on 4 February to only +0.87 pp on 28 February – see Table 1.
The PCE growth forecast for Q1 has also fallen significantly to only +1.29% (from +4.1% on 3 February) – see Figure 4. This is of course a consequence of the decline in PCE spending for January 2025, which fell by MoM 0.2% - see Figure 5.
Figure 6 shows the main nominal data series from the Personal Income and Outlays report.
All-in-all, if the “Growth scare” could eventually reduce “inflation scare” - that would allow the Fed to cut interest rates... and at this stage of the cycle, rate cuts could still be positive for risk assets (ala Goldilocks scenario).
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