The rollout of President Trump’s tariffs on Canada, Mexico and China has roiled expectations for US economic activity in the first quarter.
Prior to what is shaping up to be a global tariff war, nowcasts for US output in Q1 had been running in line with the moderate growth posted in Q4.
In CapitalSpectator.com’s previous GDP-nowcast update on Feb. 17, the median estimate was +2.3% for GDP’s annualized pace in the first three months of 2025 — matching the rise in Q4.
Today’s revised estimate, by contrast, has fallen sharply to 1.4%, based on the median estimate for several nowcasts. Keep in mind that these are still early days in what could be a protracted tariff war.
The Atlanta Fed’s GDPNow model is strikingly grim at the moment. The latest estimate is a -2.8%. The regional Fed bank on Monday advised:
“After this morning’s releases from the US Census Bureau and the Institute for Supply Management, the nowcast of first-quarter real personal consumption expenditures growth and real private fixed investment growth fell from 1.3 percent and 3.5 percent, respectively, to 0.0 percent and 0.1 percent.”
The current nowcasts — especially the GDPNow estimate — should be viewed with extreme caution, at least for now. Given President Trump’s mercurial decision-making process, it’s possible that the trade war he launched this week could evolve and take a less threatening turn.
An upbeat hint of what’s possible emerged yesterday when Commerce Secretary Howard Lutnik told CNBC that Trump will “probably” announce a compromise with Canada and Mexico as early as today.
“Both the Mexicans and the Canadians are on the phone with me all day today, trying to show that they’ll do better,” he said on Tuesday afternoon. “And the President is listening because, you know, he’s very, very fair and very reasonable. So I think he’s going to work something out with them.”
Meanwhile, macro risk is rising, perhaps significantly.
“We’ve got now multiple trade wars on multiple fronts,” said Diane Swonk, chief economist at KPMG.
It’s too soon to know the full extent of the effects from a trade war, but the early estimates from Q1 estimates suggest that the outlook for economic growth is fading, perhaps faster than the White House realizes.