Gross domestic product is the standard measure of the country’s economic growth. This is the sum of consumption, investment, government expenditure and trade balances defined from exports to imports.
In most circumstances, developed economies like the US are looking to aim for GDP of around 2% to 3% per quarter adjusted for inflation. The US has been slightly better than 2% over the past two years. And it was expected to run at that pace until Trump launched tariffs.
But Trump’s tariff shock has begun to rattle economic data. On Tuesday, the Commerce Department reported that the US trade deficit for goods, which unexpectedly expanded to an all-time high in March, had grown unexpectedly as businesses began to increase imports ahead of Trump’s import obligations.
Having a large amount of imports that result in a trade deficit does not necessarily indicate economic weakness, assuming that imports are balanced by consumption and investment. The US has been operating in a historically wide trade deficit for many years, but has not substantially affected GDP performance.
However, the latest surge in imports likely overwhelmed the remaining economies’ ability to absorb them in the short term.
Still, the measurements do not reflect overall consumer and business performance, Morgan Stanley analysts wrote in a note to clients.
“It’s important to note that this reflects not current economic weakness, but frontlines and not current economic weakness,” an analyst at Morgan Stanley wrote in a note to his client.
What about other economies? Analysts say it’s likely that consumption and investment will be slower, but it didn’t turn around.
“In our view, this story is one of the US economy that ended the first quarter on a solid footing,” said an official at Morgan Stanley.
Analysts at JP Morgan point out that if Q1 GDP is unexpectedly weak, Q2 GDP can be unexpectedly strong.
“If imports collapse in the coming months, there will be a temporary bounceback in GDP measured in the second quarter,” they wrote in a memo.