Argus

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Jun 26, 2025

Summary

This morning's release from the Bureau of Economic Analysis (BEA) will be the third, and final, update of 1Q GDP. The update last month indicated 1Q real GDP decreased at an annualized 0.2% pace, a significant drop from 2.4% growth in 4Q24. We do not see the decline as a harbinger of recession, but rather as a result of businesses and consumers making purchases ahead of the widely anticipated implementation of tariffs. Imports jumped 43%. Foreign-made products, which are subtracted from domestic output, reduced GDP by 4.9 percentage points and could not be offset by 2.4% growth in exports, which added about a quarter point to GDP. We are likely to see a partial reversal of the import drag in 2Q. On June 18, the Atlanta Fed's GDPNowcast was projecting a 3.4% increase in 2Q GDP, with imports declining almost 15% and exports dropping 2.8%. We expect consumer spending to return to its leading role in the economy after trade negotiations are resolved. Personal Consumption Expenditures (PCE), as the category is called in the GDP report, rose 1.2% in 1Q according to the second revision. This was the category's smallest increase since 2Q23. PCE is projected to grow 1.9% in the second quarter according to the Nowcast. Gross private domestic investment jumped 24.4% in 1Q, adding nearly 4 points to GDP. Investment in equipment led the charge, increasing by 24.8%, as businesses appeared to purchase computers ahead of tariffs. Residential fixed investment declined 0.6% in 1Q, as high prices and elevated mortgage rates kept prospective buyers on the sidelines. The Nowcast projects a 4.4% decline