May 12, 2025

Hi everyone, my name is Taylor St. Germain with ITR Economics and welcome to this edition of TrendsTalk. We at ITR are your apolitical and unbiased source of economic intelligence and today I wanted to discuss that first quarter GDP number that came out just a week ago.

The headline GDP result was minus 0.3% compared to the previous quarter. Now this was an atypical quarter because the decrease was almost entirely due to a surge in imports, which mathematically speaking really detract from the GDP calculation. And this is as a result of consumers and businesses really looking to get ahead of the tariffs that were announced and of course we’ve talked tariffs a lot in the past.

Now there was also some downside in that first quarter GDP number that came as a result of the government spending cuts. Government spending of course is a critical component of GDP and when you look at the federal cuts they were not offset by the increases that we did see on the state and local level. So that was a net negative overall.

Now the way we interpret this at ITR, by the way our team at ITR was I believe 0.1% off getting that first quarter number correct. So our team was right on top of that and I first wanted to highlight that. The challenge that this creates is again it’s atypical because it’s really a challenge in imports and government spending but it creates another negative headline out there. And we chatted about this in one of our recent blogs on the web, on our website so please go over to ITReconomics.com and check out that blog but it’s just another negative headline weighing on sentiment.

But that’s why we have to focus on what the drivers of this contraction were. It’s government spending in the time of import activity. Now, these aren’t typical drivers of a traditional recession. In the first quarter of 2025, for many of the businesses that we work with, did not feel like a recession. I work with a number of ITR’s clients when I’m not traveling and delivering presentations, and we saw a number of clients see their data improve throughout the first quarter. Now, most clients are in the recovery phase of the business cycle, meaning we’re still down year over year, but we’re getting less negative. Those growth rates have bottomed out and are improving, albeit still below the year ago level.

So, I want to, again, encourage you to look at the data and what the leading indicators are telling us. Because a number of leading indicators are still suggesting that as we move, especially into the second half of this year, we’re going to see some positive activity coming our way. And if we read into these headlines and internalize a number like a weak first quarter of GDP, and we’re not taking steps as businesses to prepare for the growth that’s coming in the future, then we’re likely going to miss out on some of that growth.

So I know there’s a lot of uncertainty. I often share the US trade policy uncertainty index, which is about three times higher than it was at the peak of the pandemic. There’s still a lot of uncertainty out there, but we need to continue to look at the strong fundamentals out there. The consumer finances, consumer spending, rose at a normal rate across both goods and services. And that’s about two thirds of GDP, and you should find that really encouraging.

What I’m trying to highlight here is if you get outside of that import activity, that government spending activity, a lot of these fundamentals of our economy are still strong and are still suggesting growth ahead. Don’t read too much into the headlines. Don’t read too much into the way the media is interpreting things, because if you’re not taking steps in this first half of the year to prepare your business for growth, you’re likely to miss out on growth in the second half of this year, and certainly as we move into 2026.

The second quarter of GDP is a quarter that is likely to be challenging. But again, when we look at the leading indicators, they suggest much better times ahead, particularly in the second half of this year. Continue to focus on the data, continue to focus on the leading indicators that have always lent themself to allowing us to prepare our businesses in a way that creates success for us in the future. I’m still optimistic of what the second half of this year holds. I know our team at ITR is, and we need to move forward with that thought process. Don’t get too bogged down in what the media suggests.

I hope you found this information helpful. Thanks for joining me on another episode of TrendsTalk. I look forward to speaking with you all in the next one. Please remember to like and subscribe to Trends Talk wherever you listen to your podcast, and we’ll be talking with you soon.