Is the U.S. already in a recession? Probably not. However, real GDP for the first quarter will likely show a negative reading. Even before last Friday’s data, there were warning signs. Retail sales dropped 0.9% in January, housing starts declined by 9.8%, and the personal savings rate hit its lowest since COVID. Existing home sales fell 4.9%, and with pending home sales also down, February is weakening. Additionally, manufacturing production slipped, and capital goods shipments (excluding aircraft and defense) declined.
A possible early sign of private-sector job losses emerged, with initial unemployment claims jumping to 242,000—significantly higher than the 213,000 recorded during the same week last year. However, the biggest factor behind a likely drop in Q1 GDP was a sharp import increase, particularly in industrial supplies. Since GDP measures domestic production, imports are subtracted from the total. This import surge contributed to the Atlanta Fed’s GDP now model estimating a -2.8% growth rate for Q1.
That said, a negative first-quarter GDP reading doesn’t necessarily mean the economy is in a recession. Economic data can be volatile. Unusually cold winter weather and California wildfires may have temporarily suppressed retail sales and home construction. The import surge could also be tied to businesses rushing to get goods into the U.S. before potential new tariffs, meaning it may reverse in the coming months. If that happens, Q2 GDP could see a temporary boost.
Meanwhile, the Trump administration appears committed to reducing government spending. While I believe this could benefit long-term growth, in the short term, it may cause disruptions for businesses and consumers relying on government support.
With mixed economic signals—some pointing to weakness, others to temporary distortions—it’s too early to call this a recession. A negative Q1 GDP report is concerning, but I’ll need more data before drawing any firm conclusions.
If you have any questions or concerns about the economy and how it may impact your financial plans, I’m here to help. Whether you’d like to discuss your investments, retirement strategy, or overall financial outlook, I encourage you to schedule a meeting at your convenience. You can find my calendar link in the top right-hand corner of this page—let’s connect and navigate these uncertain times together.