U.S. Economics – Growth

Intro

Real GDP contracted by 0.3% on a q/q annualized basis and the y/y pace slowed to 2.0% from 2.5%. This was largely anticipated due to tariff-impacted trade dynamics, with imports subtracting 5.0% from headline growth. Despite the negative q/q headline print, the rest of the report did not send imminent recession signals. However, we will be monitoring upcoming labor reports for evidence of slowing payrolls and wages, alongside shipping data, for signs of softening demand, which would likely increase the probability of weaker real economic growth moving forward.

Growth

The Signals:

• • Real GDP (Chart 1)
    • The y/y pace of Real GDP slowed to 2.0% from 2.5% in 1Q25, its third sequential deceleration.
      • The y/y rate when adding Real Personal Consumption Expenditures (Real PCE) plus Gross Private Domestic Investment (GPDI) accelerated to 3.7% from 2.8%, its fastest pace since 2Q22.
      • Going back to 1947, there was only one recession (1970) that had the above series, PCE plus GPDI, in positive territory.
      • To further isolate for the idiosyncratic dynamics of today’s environment, we can subtract the Change in Private Inventories, which benefited from the deluge of imports, from GPDI and add GPDI excluding Inventories to PCE, which shows a y/y rate of 3.1%, up from 3.0%.
  • ADP Payrolls (Chart 2)
    • Total non-farm private payroll growth slowed to 62,000 in April from 147,000 in the prior month, its lowest level since July 2024 and below its 2015 to 2019 average of 161,000.
      • More than half of that m/m headline increase came from Leisure & Hospitality and Trade, Transportation, & Utilities, growing by 27,000 and 21,000, respectively.
      • The largest negative contribution was in Education & Health Services, declining by 23,000 – a sector that was expected to face potential headwinds spawning from efforts at the Department of Government Efficiency (DOGE).
      • The ADP report does not have enough history to be a conclusive recession signal, but there were months in 2010, 2012, 2013, 2016, 2018, 2019, 2023, and 2024 with m/m growth below 62,000, all periods not associated with recession.
  • ADP Median Change in Annual Pay (Chart 3)
    • The median y/y change in pay for Job Stayers slowed to 4.5% from 4.6%, while Job Changers accelerated to 6.9% from 6.7%, a four-month high.
      • At the sector level, only Natural Resources & Mining saw median pay accelerate y/y, while Manufacturing slowed the most.
      • This data also has a short history, but the overall takeaway is that y/y growth in median pay for all industries remains above inflation, which is positive for the consumer.
  • SONAR Outbound Tender Volume Index (Chart 4)
    • The SONAR Outbound Tender Volume Index (OTVI) measures the number of requests from shippers that need to move goods on the highway.
      • OTVI was down by 8.4% y/y at the mid-point of April.
      • We will be looking to see if this measure experiences its seasonal upswing into May.
      • Further softness would suggest shipping demand has continued to slow, reflecting broader economic weakness.

The Takeaway:

• There has been a tremendous amount of uncertainty related to U.S. foreign trade policy, which weighed on 1Q25 GDP growth.
• Should those dynamics persist, we would expect to see a continuation of slow growth.
• To measure the likelihood of that outcome, we can track payroll and wage growth alongside shipping-related data.
• The data we have available today suggests growth has slowed but not to levels that would indicate imminent recession.

Visuals:

(Chart 1)

Source: Macrobond

(Chart 2)

Source: Macrobond

(Chart 3)

Source: Macrobond

(Chart 4)

Source: SONAR

Market Trends:

Source: Macrobond

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.