U.S. Economic Alarms Sound as GDP Expectations Plunge to -1.5%, Risk of Recession Intensifies?

Recently, signs of slowing down in the US economy have become increasingly obvious, especially the Atlanta Fed's GDPNow model has significantly lowered its U.S. GDP growth forecast for the first quarter, plummeting from 2.3% to -1.5%. If this forecast becomes a reality, the U.S. economy will face its first quarterly contraction since 2022. At the same time, multiple factors such as the widening trade deficit, intensified uncertainty in tariff policies, and decline in consumer confidence have made the market worry about the future economic direction. What is more interesting is that the US government is even discussing how to adjust GDP calculation, which has caused greater controversy. This article will provide an in-depth analysis of the reasons for the decline in US economic growth and its possible impact.

1. GDP expectations have been significantly lowered, and the US economy is under pressure

The GDPNow model is an economic forecasting tool developed by the Atlanta Fed in the United States. It is based on the latest official data and is not subject to human intervention. Therefore, its prediction results have high reference value. On February 26, the model's forecast data also showed that the United States' GDP grew by 2.3% in the first quarter. However, just two days later, on February 28, the data plummeted to -1.5%. Such a large decline is undoubtedly shocking. This change shows that the U.S. economy is facing greater uncertainty and the market needs to reassess future growth prospects.

Generally speaking, the GDPNow model will frequently update the prediction results before the economic data is released, and as the data is improved, the prediction error will gradually narrow. Therefore, the sharp drop in GDP forecast this time is likely to mean that the real situation of the US economy is worse than expected, and there may be major changes in corporate investment, consumer spending, and government policies.

2. The trade deficit hits a new high, and net exports drag down economic growth

One of the important reasons for the decline in US economic growth is the sharp expansion of the trade deficit. Data shows that the U.S. commodity trade deficit in January reached a record $153.3 billion, far higher than the market expectations of $116.6 billion. Among them, imports increased by 11.9% to US$325.4 billion, while exports increased by only 2% to US$172.2 billion. This data shows that U.S. import demand far exceeds exports, and weak exports further exacerbates downward pressure on the economy.

In the calculation of GDP, net exports (export minus imports) are an important component. If imports increase significantly and export growth is weak, it will lead to a decrease in the contribution of net exports to GDP. According to the Atlanta Fed's GDPNow model, the contribution of net exports to real GDP growth in the first quarter has dropped from -0.41 percentage points to -3.70 percentage points, indicating that the widening of the trade deficit has had a significant negative impact on economic growth.

3. The impact of Trump's tariff policy appears

The widening of the US trade deficit is not unrelated to the Trump administration's tariff policy. After Trump returned to power, he began to implement more radical trade protectionist policies, which led to companies and consumers worrying about rising tariff costs in the future and stockpiling goods in advance, resulting in a surge in imports.

In order to avoid possible future trade restrictions, enterprises accelerate import of raw materials and products, and consumers are also worried about rising prices in the future and purchase durable consumer goods in advance. This phenomenon has pushed up imports in the short term, but has not brought about corresponding export growth. Instead, it has exacerbated the trade deficit problem and ultimately dragged down GDP growth.

In addition, there is great uncertainty in the Trump administration's tariff policy. Policy changes every day, making it difficult for enterprises to formulate long-term plans, which also affects manufacturing and investment activities and further increases the risk of economic slowdown.

4. Consumer confidence declines, inflation expectations rise

In addition to the widening trade deficit, consumer confidence in the United States is also declining. According to a new survey by the University of Michigan, U.S. consumer sentiment fell sharply in January, indicating that people are pessimistic about future economic growth. At the same time, inflation expectations in the next year also jumped from 3.3% to 4.3%, which means consumers generally believe that prices will continue to rise and purchasing power will further decline.

Harris poll also shows that most American consumers believe that Trump's tariff policy will push up prices, and this expectation will affect consumption willingness. If consumers start to reduce spending, the profitability of enterprises will be impacted, further affecting investment and employment, and forming a vicious cycle of economic downturn.

5. The government tried to adjust the GDP calculation method, and disputes arose

Faced with the reality of slowing economic growth, senior U.S. government officials began to try to adjust the way GDP is calculated. U.S. Commerce Secretary Lutnik said in an interview that he is considering removing government spending from GDP calculations to more accurately reflect economic growth.

However, the proposal quickly sparked doubts from economists. GDP is essentially an indicator to measure a country's total economic activity, and government expenditure is an important part of it, especially in areas such as infrastructure construction, national defense, and social welfare. If government spending is excluded, GDP data may become extremely unstable and cannot even accurately reflect the overall picture of the economy.

Musk also expressed his opinion on this, saying that government spending should be excluded from GDP, otherwise the government can artificially raise GDP data through unnecessary expenses, which may not really improve people's quality of life.

6. What is the future direction of the economy?

At present, the challenges facing the US economy cannot be underestimated. Factors such as widening trade deficit, uncertainty in tariff policies, declining consumer confidence, and rising inflation expectations are all putting pressure on economic growth. If economic data continues to be weak in the coming months, it may even trigger market concerns about the recession.

At the same time, if the US government really adjusts the GDP calculation method, it may have a greater impact on market confidence. Once investors question the credibility of official data, the capital market may experience more drastic volatility.

In the future, the direction of the US economy will depend on multiple factors, including whether trade policies will be adjusted, whether inflation will be controlled, and whether the Federal Reserve will adjust monetary policy. For investors and businesses, staying vigilant and paying attention to the latest changes in economic data will be the key to dealing with uncertainty.

In summary, the US economy is undergoing a round of slowdown, GDP growth expected to be significantly lowered, and the impact of trade deficit and tariff policies are gradually emerging. Faced with pressure on economic growth, will the US government take new stimulus measures? Will the market usher in greater fluctuations? These issues deserve our continued attention.