Listen to the full episode here.
General Overview
Conversation Summary: John and Sam discuss the recent announcement by the Bureau of Economic Analysis that the US economy shrank by 0.3% in the first quarter of 2025. [14:34] They analyzed the underlying factors behind this negative GDP growth, such as the deterioration in the trade deficit and the increase in inventories. [02:35] They argue that the headline number does not necessarily reflect the true state of the economy, and that a closer look at consumer spending, job growth, and other economic indicators suggests the economy is not in a dire situation.
Key Points
- The negative GDP growth was primarily driven by a massive deterioration in the trade deficit, which took around 450 basis points off the equation. [02:35]
- Consumer spending grew at a 1.8% rate in the first quarter, which the speakers described as “just fine” and “adequate.” [04:17]
- Job growth has been modest, with the labor market still showing signs of strength, which is important for supporting consumer spending. [08:21]
- John and Sam argue that the headline GDP number does not tell the full story, and that a deeper dive into the underlying data paints a more nuanced picture of the economy. [17:40]
Trading Perspectives Podcast – Edited Transcript
John Norris (00:31):
Well, hello again, everybody. This is John Norris at Trading Perspectives. As always, we have our good friend, Sam Clement. Sam, say hello.
Sam Clement (00:36):
John, how are you doing?
John Norris (00:37):
I’m doing okay—maybe even better than I should be. This morning, the Bureau of Economic Analysis (BEA) announced that the U.S. economy shrank by 0.3% in the first quarter of 2025. A negative GDP print. The headlines are dramatic—“blood in the streets”—and the market is down significantly. But I have to ask, Sam: is it really as bad as all that?
Sam Clement (01:08):
Short answer: no. It’s not as bad as the headline number might suggest. It feels like we’ve been here before. Over the last few years, GDP prints have often come with an asterisk. Since late 2021, we’ve seen headlines say one thing, but the underlying data say another. So, we’ve had some practice reading between the lines. It feels like the reported data and actual economic reality aren’t always aligned anymore.
John Norris (01:55):
For those listening who might not know how gross domestic product—or GDP—is calculated, let’s break it down. GDP equals C + I + G + (Net Exports):
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C is consumer spending,
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I is private investment,
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G is government purchases—not all government spending, just what’s considered a direct contribution to the economy,
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And Net Exports is exports minus imports.
This past quarter, the biggest drag came from a massive deterioration in our trade balance. We saw enormous trade deficits in January, February, and March. A lot of it started with gold in January, but then businesses began restocking inventory in February and March. They were purchasing early, planning ahead—and that added to the trade imbalance.
If I remember correctly, that deterioration in trade took about 450 basis points off the GDP number. I think the exact number was 458. That’s huge. And almost by definition, we won’t see a similar trade drag next quarter—so we’ll likely see a bit of a bounce back.
Sam Clement (03:45):
Yeah, that’s the thing about inventories and trade deficits—they tend to balance out over time.
John Norris (03:53):
They flip-flop, really.
Sam Clement (03:57):
Exactly. So when we’re looking at how strong the economy really is, it comes down to how strong the consumer is. We’re a consumer-driven economy. That’s the key driver.
John Norris (04:17):
Right. Consumer spending—“C” in the equation—was up 1.8%. That’s decent. Nothing flashy, but not a sign of collapse either. When it’s under 2%, it usually suggests people are focusing more on necessities than luxuries.
Also worth noting: the inventory buildup added about 225 to 230 basis points to GDP. So, when you strip everything down, it’s really about consumer spending, investment, and government spending. Interestingly, government spending actually shrank a bit this quarter.
Sam Clement (05:08):
First time that’s happened in two or three years, I think—maybe since 2022.
John Norris (05:11):
Exactly. And even with that, I wouldn’t count on the government shrinking spending dramatically moving forward. So looking ahead, we’ll likely see inventories shrink, which will subtract from GDP, but trade should improve and add back in. That leaves the consumer—and to a lesser extent, private investment—as the focus.
Sam Clement (06:09):
Right. Things aren’t as strong as they have been, but they’re not collapsing either. It’s not like everything is contracting. Final sales were up over 3% annualized. It’s kind of like a Rorschach test—you see what you want to see.
John Norris (06:30):
Did you just say Rorschach test?
Sam Clement (06:32):
I did. You see what you want and tell the story you want to tell.
John Norris (06:36):
I usually see butterflies.
Sam Clement (06:37):
There you go. But you’ll hear people saying, “Back-to-back quarters of negative GDP—we’re in a recession.” And I remember in 2022, I made speeches saying, “I don’t think we are,” when you break down the data.
John Norris (06:53):
And you were right. They revised it later to show growth.
Sam Clement (06:55):
Exactly. So we might be in that type of environment again. Not booming, but also not a worst-case scenario.
John Norris (07:13):
Right. You really have to look beyond the headline. We’ve expected a slightly weaker consumer this quarter, and that’s playing out. But job gains have been modest. The JOLTS report still shows 7.2 million job openings—fewer than before, but still high.
Sam Clement (08:16):
Yeah. ADP said 62,000 jobs this morning. I call it the random number generator.
John Norris (08:21):
Still—job growth means paychecks, and paychecks mean consumers. I see a 1.8% consumer in Q1, and I’d expect around 1.5% in Q2. A bit weaker, but not dramatically so.
Sam Clement (09:17):
Right. And Visa’s comments support that. They’re seeing solid spending across all income levels. Most of the growth is coming from higher-income households. Discretionary spending is fine overall, but travel is softening.
John Norris (09:54):
Which stinks—I’ve already booked all my trips for the year.
Sam Clement (09:59):
Some you win, some you lose. But that makes sense—if your budget tightens, travel is often the first to go.
John Norris (10:09):
Exactly. Vacations are the most discretionary. You can delay them indefinitely. A new washing machine? Not so much.
Sam Clement (10:52):
Right. Discretionary doesn’t always mean optional in the short term.
John Norris (10:55):
But vacations? Yeah—truly optional.
Sam Clement (11:16):
So consumers are tightening, but it’s not a full collapse. They’re cutting back on the easiest things first—not slashing spending across the board.
John Norris (11:46):
Good point. But some might say: “What about consumer sentiment?” The Conference Board’s consumer expectations fell to 54.4—that’s recession territory. And yes, those gauges can be useful. But they also change fast. Predicting behavior six months out is tough.
Sam Clement (12:47):
I question how useful sentiment gauges are now, especially in a polarized environment. They can be self-fulfilling, but they’re no longer tied as closely to things like gas prices or the stock market like they used to be.
John Norris (13:38):
Right. Gas was $2.49 yesterday—usually that’d boost sentiment.
Sam Clement (13:44):
Exactly.
John Norris (14:01):
Look, sentiment is great when it supports your argument. I use it to back up my forecast—not to make it. And to circle back: yes, GDP was -0.3%. Markets didn’t love it. But if it were truly bad, we’d see it reflected in the Fed Funds futures market. As of this morning, there’s only a 9% chance of a rate cut next week.
Sam Clement (15:44):
Exactly. Timing plays a role too. Even if the data is soft, it may not be enough to change Fed policy that quickly.
John Norris (16:28):
If it were as dire as some headlines suggest, we’d be seeing a higher chance of a cut priced in.
Sam Clement (16:47):
Agreed.
John Norris (17:00):
So, final thought: be careful with headline numbers. Media will lead with the most dramatic angle. Bad news sells. But underneath the surface, the data tells a more nuanced story.
Sam Clement (17:33):
Exactly. It’s the dash in front of the number that grabs attention.
John Norris (18:05):
And without the deterioration in trade, this economy probably grew 1.5% to 2%. Not great—but not collapsing either.
Sam Clement (18:20):
Certainly not as strong as Q4, but not terrible.
John Norris (18:55):
Ask yourself: have you seen a total change in your daily life? Most people would say no. And if that’s the case, then the economy hasn’t fallen off a cliff. The U.S. economy doesn’t turn on a dime.
Sam Clement (19:05):
Exactly. It’s a big ship—it takes time to change direction.
John Norris (19:11):
Alright, everyone—thanks for listening. We love hearing from you. Drop us a line at , or leave a review on your favorite podcast app.
Want more insights? Visit oakworth.com, click on the Thought Leadership tab, and explore our blog Common Cents, previous Trading Perspectives episodes, and our Macro & Market quarterly review.
As always, opinions expressed are just ours at the time of recording—not necessarily those of Oakworth Capital Bank. And nothing discussed should be considered an offer to buy or sell investments, products, or services.
Sam Clement (20:11):
I like it.
John Norris (20:11):
That’s all I’ve got.
Sam Clement:
Same here. Take care, everyone.
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