“Final sales to private domestic purchasers” jumped by 3.0%, on strength in the private economy of businesses and consumers.
By Wolf Richter for WOLF STREET.
A massive spike in imports, by far the worst ever, on tariff-frontrunning subtracted 5.0 percentage points from GDP growth (adjusted for inflation), turning it negative. A decline in government spending subtracted another 0.25 percentage points, and turned GDP growth to -0.3%, despite decent growth in consumer spending (+1.8%) and a huge surge in gross private domestic investment (+21.9%), including a 22.5% increase in investment in equipment, as companies have begun ramping up investing in production in the US to avoid the tariffs.
We’ll start with “net exports” because they’re the stars of this show today. Net exports are exports minus imports. Exports are a positive in GDP, imports are a negative in GDP. Net exports, driven by an explosion of imports on tariff frontrunning, worsened to a seasonally adjusted annual rate of negative $1.37 trillion in Q1.
- Exports: +1.8% (goods exports +3.2%, services exports -0.7%). Exports added 0.19 percentage points to GDP growth.
- Imports: +41.3% (goods imports +50.9%, services imports +8.6%). This reduced GDP growth by 5.0 percentage points.
GDP dipped by an annualized rate of 0.3%, adjusted for inflation (“real GDP”), after growth rates of 2.4% in Q4, 3.1% in Q3, and 3.0% in Q2.
Exploding imports are not a sign of weakening demand. The Q1 2022 drop in GDP was also caused by a surge in imports after the shortages as supply chains recovered and backed-up goods began arriving in the US.
In terms of dollars, “real” GDP dipped to an annual rate of $23.5 trillion in Q1, according to the Bureau of Economic Analysis today.
“Final sales to private domestic purchasers”: The private US economy.
This metric is part of the GDP report, released today by the BEA, and tracks US private domestic demand from consumers and businesses, including fixed investments by businesses. It is GDP less exports, less imports, less government consumption expenditures, less government gross investment, less change in private inventories. It covers about 87% of GDP and presents the core of the private US economy.
Powell also mentions it from time to time as a purer indicator of private domestic demand from consumers and businesses – which is what monetary policy is trying to influence (not trade and government spending).
Adjusted for inflation, final sales to private domestic purchasers jumped by an annual rate of 3.0% in Q1, to $20.7 trillion, up from 2.9% Q4, attesting to the strength of private domestic demand and investments by consumers and businesses.
The blue columns show the growth rates (left axis), the red line shows the dollars (right axis), all in seasonally adjusted annual rates (SAAR):
Not adjusted for inflation, “current-dollar” GDP grew by an annual rate of 3.5% to $30.0 trillion, measured in current dollars, not inflation-adjusted dollars. This sometimes called “nominal GDP” represents the actual size of the US economy in today’s dollars and forms the basis for the Debt-to-GDP ratio (further down) and similar GDP-based ratios.
Consumer spending rose by an annual rate of 1.8% in Q1, adjusted for inflation, to $16.4 trillion, after three quarters of higher growth rates.
- Services: +2.4%.
- Durable goods: -3.4%%
- Nondurable goods: +2.7%.
Consumer spending along with business activities got “disrupted” by the wildfires in Los Angeles County (nearly 10 million population) in Q1, and the disruptions is included in the GDP data, but the BEA says, “it is not possible to estimate the overall impact of the California wildfires on first-quarter GDP.” So it’s in there, but it can’t be split out:
Private fixed investment jumped by 7.8% annualized and adjusted for inflation, the highest growth rate since Q2 2023, and the second highest since Q1 2022. Of which:
- Nonresidential fixed investments: +9.8%:
- Structures: +0.4%
- Equipment: +22.5%, the highest growth rate since Q3 2020, and the second highest since Q3 2011, as companies invested to ramp up production in the US, which is what tariffs encourage them to do.
- Intellectual property products (software, movies, etc.): +4.1%.
- Residential fixed investment: +1.3%.
Private inventory investment rose to $3.0 trillion in Q1, driven by the surge in imports that went into wholesale inventory. According to the BEA, the top contributor to this increase in wholesale inventories was imported pharmaceutical products, as drug companies were frontrunning the tariffs. This change in private inventories contributed 2.25 percentage points to GDP growth.
Government consumption expenditures and gross investment dipped by 1.4% annualized and adjusted for inflation, the first decline since Q2 2022.
The drop reduced overall GDP growth by 0.25 percentage points.
Combined, federal, state, and local government consumption and investment accounts for 17% of GDP.
Within total government spending, state and local governments account for 61% and the federal government for 39%.
This does not include interest payments, and it does not include transfer payments directly to consumers (the biggest part of which are Social Security payments), which are counted in GDP if and when consumers and businesses spend these funds or invest them in fixed investments.
- State and local governments: +0.8%.
- Federal government: -5.1%.
- National Defense -0.8%.
- Nondefense -1.0%.
The Debt-to-GDP ratio improved slightly to 120.8%, on 3.5% growth in current-dollar GDP (see above) and the Treasury debt that has been stuck at the debt ceiling of $36.2 trillion since the beginning of the year. As soon as the debt ceiling is lifted, the debt will spike, and the Debt-to-GDP ratio will worsen.
The Debt-to-GDP ratio is based on current-dollar GDP and on current-dollar Treasury debt, neither adjusted for inflation (the effects of inflation being both in the numerator and denominator cancel out).
The spike in 2020 occurred as GDP collapsed during the lockdown while the Treasury debt jumped on the government’s free-money-giveaway spree.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the mug to find out how:
LA Wildfires and “disruption.” Makes sense that it can’t split out, but was it positive or negative for the numbers? After the fires, the malls (and hotels) throughout Southern California were packed with people…a lot of spending to replace lost things. So did this potentially artificially drive up consumer spending numbers? How much could it move the needle?
How much could it move the needle? Not much, really. The minuscule number of people affected by the fires compared to the size of the general population mitigates against it having much of an effect. If the malls WERE packed, it was probably people seeking comfort in being with people.
It’s not only the people hit by the fires, it’s the population overall of the area who were shocked by the fires and affected in other ways by the fires, including the smoke and pollution, and the psychological impact of having part of your area burn down, and they made decisions in ways that they might have made differently otherwise. This could be not going out to dinner, not going shopping, etc.
Gold imports, measured in dollars, are up roughly 30X from a year ago. Without that surge,
1st quarter gdp would be positive.
Imports of gold that investors buy are excluded from GDP calculation. I discussed this in detail here:
https://wolfstreet.com/2025/04/28/how-gold-imports-blew-up-the-atlanta-fed-gdpnow-the-old-model-is-dead-long-live-the-new-gdpnow-model-starting-apr-30/
No, they are not at all, and moreover those are excluded from GDP.
Doesn’t sound as bad as some of the more dramatic sites suggest. The US economy certainly seems strong. My son lost his job yesterday in Canada as he works in an industry which supplies special medical lasers for cancer research, which have no competition except for a company in Britain. The tariffs or a fear of recession, caused a big reduction in orders and layoffs of about 10% of the company. He’ll get a job elsewhere but I think the fears being amplified in the media are causing a reduction in spending and reduction in full-time employment. Without this fear and uncertainty, the US economy would probably be even stronger
Tariffs are just now being applied and the lack of goods coming on shores is very real. There are layoffs that are happening in the trucking industry.
I personally see price hikes on products my company purchases. Shien essentially being unaffordable in the US is huge. Shien sells more than Nike in the states.
The recession fears are still here and still very strong. We just aren’t seeing them right now. The COVID inflation wasn’t until later. It happened during but largely the year or two after.
There are many companies worried about inflation. Yes people are making more money because they are keeping up with inflation but so purchases increase accordingly. But none of the current data is predictive of a future results.
Yes, many people are afraid to spend on new products in the future. That sentiment is real and will show up in the data once the products show increases. Reduction in orders is because of the uncertainty. Trump changed tariffs from 10% to 37% on some countries but now there’s exceptions except maybe not? Nobody knows how it’s going to be implemented in the real world yet. There’s a lot of unintended consequences that are about to pop up as well. Wolf does a great job. The graphs show that for the last few months until today, the economy seems relatively healthy.
Except for the housing market that is slowly tanking yet spending keeps going up. People can’t afford houses and are spending spare cash. Especially with high prices and high rates. That’s good for now, but it’s not good for individuals who are deeply unhappy about not owning property. Total home owners have dipped. Employment is fine, for now, but we aren’t in a bull market kind of healthy.
JK N. Howling,
Shien and Temu are Chinese gangster organizations, selling way under their cost in the US, and were able to get through the de-minimis loophole to dodge any tariffs. Their purpose is to KILL US RETAILERS. No American should ever have bought anything from them.
China has done that with other US industries and has killed them. That process needs to be shut down.
Americans can buy from American retailers and will be just fine. F**k Shein and Temu! And American retailers will benefit at the expense of these Chinese gangster organizations.
Wolf, you sound like you could be really good friends with Peter Navarro & Kevin O’Leary. I saw O’Leary give an interview about the Trump tariffs & what the administration hopes they’ll do to bring China to heel. These guys, you included, really get how badly we’ve been screwed by China in all sorts of ways.
‘Exports are a positive in GDP, imports are a negative in GDP. ‘
If the importer is a retailer, doesn’t it add to GDP when he resells the item?
If the importer is a retailer (Temu, for example), then the import wipes out the retail sale. I presented this simplified example the other day (excluding the effects of shipping and delivery):
If you buy a $20 product from Temu, imported and sent directly to you: GDP growth = +20 retail -$20 import = $0 added to GDP.
If you buy the $20 product from a US producer: GDP = +20 retail -$0 import = +$20 added to GDP (and more later if you consider the benefits of jobs and investments)
That’s the choice. That’s why large amounts of imports instead of domestic production are so devastating to the economy.
Wouldn’t the import be lower? Assuming the cost to import to the importer is $5 and retails for $20, wouldn’t that result in GDP growth of 20-5=$15?
If the importer is a foreign company that sells and ships direct from China to the US customer, that retail price = import price because that’s the price at which it crosses the border. That’s the example I gave with Temu. All of that consumer money just goes overseas.
If the importer is a US company, that buys in bulk in China, ships the container to the US, distributes the contents of the container to its retail locations (including ecommerce fulfillment centers), and then marks up each individual item and sells the individual item to a customer, the import amount is the amount at which the bulk items crossed the border, which will be quite a bit lower than the retail price.
If the retailer doesn’t buy from overseas, but from a US producer, and all of the components and materials are produced in the US, the entire amount of the purchase prices goes into GDP, and that money stays in the US an circulates in the US.
That’s really the choice: if you buy from Temu, no part of the sale ends up GDP and it didn’t help the economy at all; if you buy from a US retailer that imports the item, part of the purchase ends up in GDP; If you buy a US-produced product, all of it goes into GDP.
And there are additional secondary and tertiary benefits of producing in the US that either already went into GDP (for example, investment in production facilities) or will go into GDP later. Which is why production in the US is hugely beneficial… it’s not just the sale without imports, it’s the whole activity of making it, including building the facilities and production equipment and the payrolls involved that then get spent and taxed.
You are here mixing different calculation-techniques.
You either calculate GDP from the production side or from the sale-side. Both give the same endresults.
Standard valuation is from the production-side and net-positive exports are always added to GDP. Imports therefore a negative for GDP. Nevermind who owns the import firm.
Thorleif
It doesn’t matter who owns the manufacturer. But it matters where manufacturing takes place — where the product comes from.
I never discussed ownership, just location of the manufacturer. Most big companies are publicly traded and ownership is spread around the world.
BTW, the two common ways to calculate the economy are GDP (spending and investment) and GNI (income by businesses and people), and both should come up with similar results over time.
Wolf, I am confused by something, I thought I remember you saying the government spending was not calculated into GDP, but it would appear that government spending on actual things does?
My love, Would you please please RTGDFA?!
It’s the same as I’ve ALWAYS said.
That last debt-to-GDP chart really tells the tale of post-2000 macro economy dysfunction.
Reagan rode to victory in 1980 decrying Fed deficit (ultimately debt) financing that was 25%(!!!) of today’s.
Timeline of US astronomical debt spikes…
1) The Fed insisting on phoney-baloney post-2000 ZIRP (and fused-at-the-spine Home Bubble 1.0 overvaluations) leads to Housing Implosion 1.0…
2) Which the Fed insists upon “saving” via epic QE money prints post 2009,
3) Leading to Home Overvaluation Bubble 2.0 (implosion pending, oh-so-pending…),
4) Then $10 billion per year CDC (as in “Disease Control”) manages to make rather massive hash of Covid,
5) “Justifying” second leg of massive debt spike (“Never let a hash go to waste…”)
And we still have the massive entitlements crisis (frequently cited in 19 freaking 80…) to deal with.
I thought Reagan got elected for his breakthrough movie “Bedtime for Bonzo”
Reagan was elected first and foremost to address the “clear and present danger” of a nuclear first strike by the Soviets. He apparently succeeded.
When Reagan took office the total debt of the US was one trillion dollars. Then came the Reagan tax cuts, aka Reaganomics, which would of course pay for themselves ( see Laughter, (Laffer) Curve. 4 years later the debt accumulated over 2 centuries had doubled. This began the political era of ‘deficits don’t matter’
Reagan said : “the deficit is big enough to take care of itself.”
Enjoy it. Just make shure you have 2-3 times as many assets as cash. Governments never stop spending, but asset application is not all profit.
Ironic, then, that Reagan and his successor Bush oversaw more than one-third of the increase in debt since 1980!
It seems that the markets have read Wolf’s article because they are shaking off earlier losses.
I don’t see how this GDP report isn’t a good thing, but the headlines of course lead with the worst news of it.
No country should be relying on Government spending aka taxes to boost jobs and GDP as Biden was doing. It is devasting long term and then there is a hangover when it runs out. Sure, some gov’t spending is necessary but it should not be a driving force.
Congress played a large part in using fiscal spending to cushion GDP. Both Republicans and Democrats.
More consumer spending, more investment, less government. What’s not to love?
Another great article to ground us solidly onto the earth.
The economy has become big media business meaning that talking/reporting on it has become part of the entertainment industry. The needs of entertainment and understanding are in conflict.
Entertainment needs drama and fast pacing.
Unfortunately the actual economy operates over many quarters and many months.
no, the media has become a dishonest arm of wall street and the democratic party.
“Equipment: +22.5%, the highest growth rate since Q3 2020, and the second highest since Q3 2011, as companies invested to ramp up production in the US, which is what tariffs encourage them to do.”
Investing in US production to avoid tariffs of products, or purchasing equipment earlier to avoid paying tariffs in THAT equipment? I.e. front-running, which you point out for the import piece. My bet is on the latter, as decisions to change manufacturing locations and supply chains were not made early enough to change Q1 numbers.
Increased imports due to front-running, while a negative on GDP, are matched with increased spending (positive on GDP) and come out in the wash. Either consumers front-ran, which increases spending, or businesses did – increasing investment, or inventory (both are positive to GDP).
The only issue here is that the initial reads on GDP tend to be bad at counting inventory (slower reporting). Expect the later revisions to adjust inventory counts, possibly improving GDP numbers a little.
Imports are going drop in future quarters (the other side of frontrunning), boosting GDP. Inventory adjustment in future quarters is going to reduce GPD by some.
The issues of imports and inventories are UNRELATED TO DEMAND IN THE US ECONOMY.
That’s why I gave you in the article above this, quoted verbatim from my article above because people don’t seem to have read the article:
The health of the private US economy: Growth of “final sales to private domestic purchasers” accelerated to +3.0%.
This metric is part of the GDP report, released today by the BEA, and tracks US private domestic demand from consumers and businesses, including fixed investments by businesses. It is GDP less exports, less imports, less government consumption expenditures, less government gross investment, less change in private inventories. It covers about 87% of GDP and presents the core of the private US economy.
Powell also mentions it from time to time as a purer indicator of private domestic demand from consumers and businesses – which is what monetary policy is trying to influence (not trade and government spending).
Adjusted for inflation, final sales to private domestic purchasers jumped by an annual rate of 3.0% in Q1, to $20.7 trillion, up from 2.9% Q4, attesting to the strength of private domestic demand and investments by consumers and businesses.
And similarly, the front-running purchases, inventory-building and investing will plunge, lowering GDP
A ton of confusion here and elsewhere about GDP seems to miss what the P stands for. It’s meant to measure what we produce. But because it’s much harder to count every thing we produce, we use accounting identities to get that answer from other numbers that are easier to collect (exports, imports, change in inventories, consumption, and government spending).
Saying GDP was reduced because imports were high is mistaking an accounting identity for a cause. Technically, imports do not affect GDP at all, as Wolf has explained. What affects GDP is how much stuff is made here (both goods and services, so not just manufacturing). The only question with regards to tariffs are if they will increase production because people can’t just buy stuff from overseas, or if they will reduce production because people will be poorer or because they can’t access the parts they need to make stuff or because the stuff we do make can’t be sold overseas anymore.
So what actually happened this quarter is that people and companies bought more stuff, some of which they used (consumption), and some of which companies stored as inventory (change in inventories). They also built more stuff (fixed investment). But all of that increase was stuff they bought from other countries (imports), meaning that we didn’t make it, which means it didn’t go into GDP.
This can be interpreted in two ways: 1. people need/want to buy more stuff (i.e. high demand for goods and services), which is good for an economy or 2. people are abnormally buying more stuff because they know they won’t be able to buy/afford that stuff in the near future and this will disappear in future quarters (i.e. “demand pull forward”), which doesn’t actually indicate a strong economy, but indicates that future demand will actually be less.
Is this like a “core GDP” a la “core PCE” type figure going forward now? Hopefully the fed can focus on this one and delay rate cuts out further.
FYI, BES web site: https://www.bea.gov/index.php/news/2025/gross-domestic-product-1st-quarter-2025-advance-estimate
Very informative, like our host.
Really great analysis! Wolf you are the one place on the web that reports the data with any of your conclusions or opinions squarely based on that data. You make it clear even to non-financial experts like me.
And the difference can be like night and day between the data and what is reported in the rest of the media.
The one financial site that’s a must have.
You added to your response after I added mine… Note that I did read your article.
“The issues of imports and inventories are UNRELATED TO DEMAND IN THE US ECONOMY.”
Of course, but all 3 are part of GDP, which is what this article is ostensibly about.
GDP is a measure of domestic production, which is calculated by [domestic consumption] + [domestic storage] + [export] – [import].
Domestic production (GDP) should not plunge from front-running – it goes in both the plus and minus columns – however the (mis)-counting of those columns isn’t always equal.
The final sales to domestic purchasers will also contain front-running, so the fact that it did not jump up 5% is a bit of a red flag for demand.
An analogy:
Let’s say we want to know how many cows are born on our farm. But we don’t really pay enough attention to when they’re born to find out directly. But we do record how many we have, how many we buy and how many we sell. So we set up a formula. The number of cows that were born this year are the total number of cows this year, minus the ones we had last year, minus the ones we bought from other farms plus the ones we sold to other farms.
So if we buy twice as many cows from our neighbors, did any more cows get born on our farm?
This is bad Mmmmkay. Anyone? anyone? Buelluer Buelluer?
Anyone?
This GDP number in aggregate is fairly useless with so many consumers frontrunning and the consequent increase in imports. Maybe it is time for the government to post a “Core GDP”, which Wolf has clearly discussed above, and which the Fed apparently prefers. I’m not holding my breath about this happening any time soon, if ever.
I was amused by the term “Net Exports”. I would prefer the terms “Exports minus Imports” or the more conventional “Balance of Trade”. These terms are longer, but generally understandable.
serious question. how can microsoft, google, meta, and amazon have 20-30% increases in profits, year after year, decade after decade, when the economy is growing 2-3%?
i’m finding it hard to wrap my head around how this happens.
If you were a publisher relying on internet advertising, like me, you’d know exactly why Google’s profits soared every year while publishers went out of business one after the other because their ad revenues declined year after year. Google has a monopoly on the internet ad infrastructure and on many parts around it, which it created by buying out other companies, and by producing its own services and products, and it dominates everything with its browser, and now uses no-click search results where AI steals the publisher’s content without linking them.
Google has been sued over its monopolistic behavior by the government, joined by big publishers, including News Corp (WSJ), and lost both lawsuits. It will appeal. But this might ultimately lead to the breakup of Alphabet.
Microsoft has done similar things. Big Tech is all about creating monopolies. This is an insidious force in the economy that blocks growth, and the government slept through it for 20 years, and thereby encouraged it, until Biden started cracking down, and Trump continues to crack down.
thanks, this is a helpful explanation. but given that the stock market is held up by the mag7 wouldn’t a breakup of the monopolies cause a major stock decline? we’ve seen now how the media presents any decline in the bloated stock market as a catastrophe, so are they going to attack anyone, trump or otherwise, who is working to break up these anti-competitive companies?
could we all keep this on the d.l. for just a few more weeks.
Tryin to scoop up as many equities at a panicked discount as possible.
what equities are at a panicked discount at this point, pray tell?
“including a 22.5% increase in investment in equipment, as companies have begun ramping up investing in production in the US to avoid the tariffs.”
Is there any data to support this statement? For example, are companies already starting to announce that they forecast higher capital needs to build factories and to buy equipment in response to the tariffs, over the next N years (N>>1)? And wouldn’t shareholders react negatively, and prefer to buy cheap stuff, import it, and re-sell it (or integrate it) here, versus having to sink money into building out capacity (when it already exists, just not on American soil)?
How does the math work out on this? Suppose a Chinese-made widget costs $1, and there are 100,000 units sold a year. Due to tariffs, the price goes to $2, and nobody wants one from China anymore. So then I decide to buy a widget machine for $100K, install it in my garage, and start making widgets. The profit is 50 cents per unit, and so I make $50K per year, and in 2 years I start turning a profit. But how do I have any confidence that the tariffs will stay in place? How do I do the math to determine if my little business makes sense, if I have no idea if the tariff plan will stick? I could be stuck with a $100K boat anchor in my garage.
The announcements of huge investments of construction of new production facilities in the US, or in expansion of existing production facilities in the US, by US and foreign companies, from Apple (server factory in Houston) on down, have been all over the place all year. This process started two years ago, but it has picked up momentum. There has been an “eyepopping” factory construction boom since 2022 that continues:
https://wolfstreet.com/2025/02/24/apple-announces-server-manufacturing-plant-in-houston-adding-weight-to-eyepopping-us-factory-construction-boom/
Wolf, you said:
“A massive spike in imports, by far the worst ever, on tariff-frontrunning subtracted 5.0 percentage points from GDP growth (adjusted for inflation), turning it negative. “
An increase of 41% in imports was reported for the quarter and presumably is not anticipated to continue. So does this mean that if the one time increase were ignored then the actual gdp (which was negative 0.3) would be roughly 1.7%?
I am assuming this was a one off event and subtracted about 2% ie 40 percent of 5% and also that net exports are typically a 3% drag on GDP.
You could look at it that way. But then you also have to include a portion of the inventory adjustment, which goes the opposite way.
It’s just easier to look at “Final sales to private domestic purchasers” which excludes all trade, the inventory adjustment, and government spending. It’s the 4th chart down. It grew by 3.0%
1. United States of America
Final Consumption Expenditure in 2022: $21 trillion
2. The People’s Republic of China
Final Consumption Expenditure in 2022: $9.5 trillion
Regardless of what China, Canada, and the others countries around the world say about Trump Tariff’s, its is clear that they need us buying their products. The media portrays doom and gloom all day/everyday since Jan 20th 2025 inauguration. Trump is winning the shock and awe campaign. Democrats forgot what it means to be American, as did many of the behemoths who run Wall Street. I guess if you built your business and asset model based off of cheap labor inside a communist totalitarian government there is a need to worry. Just look at what good old NAFTA did to Detroit and the Midwest heartland. Just think their are those in Congress who thinks we should lay down and roll over to be a part of some globalist, socialist, communist regime, after building the Greatest Country in World for Capitalism.