GDP, PCE, Labor Market, Consumer Confidence Show Discouraging Results

GDP, PCE, Labor Market, Consumer Confidence show discouraging resultsGDP for Q1 2025 fell by 0.3% — the first contraction since 2022Imports rose by 51% amid tariff expectations, becoming the main factor behind the GDP declinePrivate investment increased by 21.9%, but this failed to offset pressure from external trade and slowing government spendingThe recession probability rose to 74% after the release of the quarterly dataThe PCE index rose to 3.7%, surpassing forecasts and last month’s readingRising inflation amid falling GDP has amplified macroeconomic risksOnly 62,000 jobs were created in April — the lowest since July 2024The Consumer Confidence Index dropped to 86, the lowest since May 2022The Expectations Index fell to 54 — the lowest since October 2011JPMorgan expects a recession by year-end; markets are pricing in four rate cuts in 2025Disagreements persist between President Trump and the Fed regarding future monetary policyLogistics disruptions and supply shortages may further fuel price growthThe risk of stagflation is rising amid economic slowdown, inflation acceleration, and deteriorating consumer sentimentA comprehensive batch of new economic data has just been released. GDP, PCE, Labor Market, Consumer Confidence show discouraging results, indicating stagflation risks. There are indeed reasonable arguments for such a scenario, which may well be grounded in the numbers we’ll now examine in detail.The Current State of the U.S. Economy, or How America Is Still Struggling to Be Great AgainJobs Down. GDP Down. Consumption Down. Inflation Up. If you’re still defending this, you’re either a grifter or a victim of a cult. Which one are you? pic.twitter.com/bFhjXfg4Qf— Spencer Hakimian (@SpencerHakimian) April 30, 2025Let’s begin with the Q1 GDP — the U.S. economy contracted by 0.3% year-over-year in the first quarter of this year, marking the first decline since 2022. The main cause of the downturn was a sharp 51% increase in imports, as businesses likely rushed to bring in goods ahead of expected tariff hikes and at lower costs.However, take note of this table — although it does not include import data, which clearly affected the GDP reading, it provides additional insight into what actually happened with the U.S. GDP.First, government spending also pushed GDP downward. The growth rate of public expenditures slowed, meaning the government sector did not support the economy as strongly as it did previously.Second, private investment in the economy grew by 21.9%. This is a very strong increase and, under other circumstances, could have pulled GDP upward, but it was offset by the surge in imports and weak government intervention.Also, the recession probability, which J.P. Morgan had estimated at 60% back in mid-April, spiked to a peak of 74% on Kalshi before reverting closer to 60%.This occurred after Q1 2025 GDP data came in worse than expected — projections were for a 0.3% increase, but the actual result was a 0.3% decrease. The failure to meet expectations — and in fact, the emergence of the opposite — has now created a highly complex scenario for the Federal Reserve.Moreover, the situation is further complicated by the rise in the Personal Consumption Expenditures (PCE) price index to 3.5%. This exceeded the forecast of 3.1% and was significantly higher than last month’s reading of 2.6%.When the PCE index rises, it means that the prices of goods and services are also rising, indicating inflation. If inflation increases faster than economic growth, this can lead to instability, which would normally prompt the central bank to raise interest rates to fight inflation. But that only applies if the economy is growing — and here, the economy is shrinking, so the Federal Reserve will most likely reject the Trump administration’s call to cut rates.If rates are indeed cut, inflation will likely rise further, especially if the current tariff regime remains unchanged. That places the U.S. economy in a genuine deadlock. The economy is slowing down at precisely the moment when inflation expectations are growing — a deeply troubling signal.Consumers in the U.S. are also highly concerned, as evidenced by the Consumer Confidence Index, which has dropped to a record low.Fed playing with fire.Massive collapse in consumer expectations for the economy in the next 6 months (hits 54.4).Back to Mar 2009 lows, well below Covid panic lows.This is extreme data.Much lower rates and usd needed to offset fiscal austerity. Fiat debasement= +btc pic.twitter.com/ecez8tt30H— Dan Tapiero (@DTAPCAP) April 30, 2025As for the latest employment data, this comes from the ADP labor market report. The U.S. economy added just 62,000 jobs in April — the lowest number since July 2024. This is well below the 147,000 jobs added in March. Once again, expectations diverged sharply from reality.The leisure and hospitality sector saw the largest gain, adding 27,000 jobs. Other industries that also showed job growth included trade, transportation, and utilities, which together added about 21,000 jobs across the U.S. The financial sector added 20,000 jobs, while construction added 16,000.Thus, the Federal Reserve faces an extremely difficult choice: to keep inflation in check or to prevent rising unemployment. If it maintains high interest rates, GDP could weaken further in the future, eventually leading to higher unemployment. On the other hand, if it cuts rates too soon, there is a strong chance that inflation will accelerate again. All of this puts the U.S. Fed in a very tough spot, forcing it to decide which economic risk takes priority.Let’s also examine the Consumer Confidence Index — an important indicator that offers valuable clues about what may lie ahead.Consumer confidence has been declining for five straight months, and April was no exception, clearly signaling mounting economic anxiety. The Consumer Confidence Index fell by eight points to 86, the lowest level since May 2022. Even more concerning is that the drop was broad-based, affecting all age groups and most income levels.More alarming still is the Expectations Index, which reflects consumer outlooks for the next six months. It plunged by 13 points to 54 — the lowest reading since October 2011. A reading below 80 typically signals a potential recession, and today’s 54-point reading is far beneath that threshold.Overall, Americans are now expressing one of the bleakest economic outlooks in over a decade. J.P. Morgan now expects a recession within the year. Nonetheless, even after all this data, markets are still hopeful that the U.S. will begin cutting rates in June, with at least four rate cuts expected this year.In other words, the market is largely betting that the U.S. will choose the economy over the inflation fight — but uncertainty around this projection is growing, as the Fed faces simultaneous pressures from both rising prices and weakening employment.In an environment of growing economic uncertainty and market volatility, investors and traders increasingly rely on trusted sources of analysis and support. 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This is a particularly difficult situation, especially in light of recent disagreements between President Trump and Fed Chair Jerome Powell. The markets are watching closely — if rates are cut and quantitative easing begins to stimulate the economy, we may see a repeat of the COVID-era bull market. Conversely, if the Fed tightens policy further or even raises rates, market pressure will intensify.ConclusionAll of this is unfolding at a time of mounting uncertainty related to tariff policy, trade wars, conflicts with numerous trading partners, falling supply volumes, and disrupted logistics chains.Given this data and the ongoing economic and political trends, what should we expect next? Based on today’s figures, my personal view is that we should prepare for stagflation: a combination of economic slowdown and inflation.