GDP Turns Negative as Inflation Smolders
In a new report released today, the Bureau of Economic Analysis (BEA) shaved another three-tenths off first-quarter growth estimates, revealing that real U.S. GDP actually slipped 0.5 percent at an annual rate instead of inching ahead. The contraction follows a 2.4 percent gain in 2024’s closing quarter, marking the economy’s sharpest quarterly swing since the brief pandemic whiplash of 2020. Imports surged, federal outlays dipped, and households tightened their belts—all while price pressures remained stubbornly elevated. Unsurprisingly, bullion buyers took notice: spot gold hovered around $3,320 early Thursday, a fresh reminder that hard assets still beckon when paper claims wobble.
Digging into the revised tables, the picture only grows murkier. Real final sales to private domestic purchasers—a cleaner gauge of underlying demand—rose 1.9 percent, not the 2.5 percent initially advertised. Goods-producing industries saw value added tumble 2.8 percent, while services slipped 0.3 percent despite a still-busy travel season. Government value added, by contrast, jumped 2.0 percent, helping to mask private-sector weakness. In other words, Main Street stalled.
Inflation remains the unwanted houseguest that refuses to leave. The gross-domestic-purchases price index advanced 3.4 percent, and the Fed’s preferred PCE gauge climbed an even hotter 3.7 percent—nearly double the central bank’s ostensible 2 percent target. Strip out volatile food and energy and core PCE still clocked in at 3.5 percent. Those numbers help explain why nominal GDP managed a 3.2 percent annualized gain even as real output contracted: dollars are moving, but they’re buying less.
Corporate America isn’t cheering either. Imports alone sliced 0.51 percentage point off growth, while personal consumption contributed a meager 0.22 point—hardly the stuff of a resilient consumer narrative. Households saved a bit more, nudging the personal saving rate to 4.3 percent, but real disposable income rose only 0.2 percent. If this is what “soft landing” looks like, the runway is awfully short.
The divergence between GDP (down 0.5 percent) and gross domestic income (up 0.2 percent) produced an averaged decline of 0.1 percent, underscoring just how fuzzy macro statistics can be. The BEA will attempt to clear the fog with its comprehensive annual revision on 25 September, while the advance read on second-quarter growth arrives 30 July. Until then, investors appear content to hedge their bets with ounces, not spreadsheets.
For citizens worried about purchasing power, the latest data offer cold comfort: output is shrinking, prices are not, and policy levers look increasingly blunt. Little wonder that gold’s shine is catching more eyes than the Fed’s assurances.
