Fin-X Pulse 1st May 2025
- Brett Careedy
- May 1
- 3 min read
The American GDP contraction in Q1 was a reflection of higher imports, likely front-running the tariffs. The remaining items in the report do not indicate a recession has begun yet. But recession risks remain elevated later in the year. Falling liquidity continues to pose a threat to equity multiples despite good tech earnings results.
US GDP growth slumped in Q1, according to the BEA's first estimate. The -0.3% (annualised) growth was below consensus forecasts of -0.2% and down from +2.4% in Q4.
The figures appear to have been dominated by tariff front-running. A surge in imports (+41.3% annualised) led to a -4.8% annualised drop in net exports.
Investment was also boosted by a substantial increase in inventories (+2.3% annualised).
Government consumption and investment fell by -1.4% (annualised), down from +3.1% last quarter.
The consumer contribution of +1.8% (annualised) was down from +4.0% in Q4 and a quarterly average of 3.1% in 2024.
The Conference Board's measure of consumer confidence slumped to the lowest level since May 2020.
The ADP private payrolls gain of +62k in April was down from a revised +147k last month and below the +115k consensus estimate. Services job growth was noticeably weaker, with the job losses concentrated in smaller firms.
Annual PCE inflation was slightly higher than anticipated (+2.3% yoy), also with an upward revision to last quarter from +2.5% yoy to +2.7% yoy.
Core PCE inflation was in line at +2.6% yoy, but also saw last quarter's reading revised up from +2.8% yoy to +3.0% yoy.
The WTI oil price dropped -3.4% after Reuters reported that Saudi Arabia was unlikely to support production cuts to support the oil price.
The share market erased -2% mid-session losses after strong earnings results from tech giants Microsoft and Meta.
S&P500 5,569 +0.2%, Nasdaq Comp. 17,446 -0.1%, S&P/ASX200 future 8,114 -0.3%,
US 2yr 3.6% -5bps, US 10yr 4.16% -1bp
US dollar (DXY) index 99.47 +0.2%, AUDUSD 0.6407 +0.4%, Gold US$/oz 3,279 -1.2%
Fin-X Wealth View
The GDP report was dominated by the negative effect of imports. Domestic growth did slow in the first quarter, but the -0.3% figure was exaggerated by temporary factors.
Consumer spending was weaker in the first quarter in each of the last 3 yrs. So it's difficult to extrapolate last quarter's softness to the whole of 2025. However, the drop in confidence and employment suggest that lower spending and growth are likely in the coming months. Moreover, the drop in government spending suggests that it might be adjusting to a lower level, despite other figures suggesting that the DOGE cuts have yet to materialise. There was nothing in the numbers that ruled out a recession later in 2025.
The ADP report provides some upside risk to broader unemployment tomorrow night. But the monthly correlation is not particularly high.
On a brighter note, the prospect of a lower oil price reduces future inflation risks despite the slightly higher PCE result.
Consequently, the Federal Reserve may be able to cut rates sooner than otherwise might be the case. This would be good news for both equity and bond investors.
Tech earnings also suggest that non-cyclical earnings growth remains strong, particularly related to the AI theme. However, there are still high risks of falling liquidity leading to multiple contraction.
This week's Quarterly Refinancing Announcement showed that more than half of Q1's Treasury issuance was delayed until this quarter. Q2 usually sees lighter issuance due to the tax receipts arriving at the Treasury. However, it was announced that issuance is expected to increase from $ 369 billion in Q1 to $ 514 billion in Q2, with a further $ 554 billion due in Q3.
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