The following is MBA SVP and Chief Economist Mike Fratantoni’s reaction to this morning’s U.S. Commerce Department report on Q1 GDP:

--

"Economic growth went negative in the first quarter as businesses rushed to import goods before tariffs went into effect. In addition to the pullback in activity, the inflation metrics increased relative to the prior quarter, so both growth and inflation were headed in the wrong direction.

“The data showed a slower 1.8% growth rate for consumer spending, with a reduction in spending on motor vehicles and parts compared to last quarter. Households were getting more cautious with respect to larger purchases even in advance of the tariff announcements.

“The biggest drag on growth was a more than 50% increase in imported goods, which subtracts from growth in the GDP calculation. The surge in imports subtracted more than 5 percentage points from growth. More than 2 percentage points of this was offset by a big jump in nonfarm inventories. Clearly, businesses were rushing to get goods into the country and were willing to store them until they were needed for production.

“The quandary facing the Federal Reserve is that while the trend in the data is clearly showing a slowing economy, it also renewed upward pressure on inflation. We expect that the Fed will hold rates steady at its meeting next week and will indicate that it will continue to hold at this level until it becomes clear whether a recession or inflation is the bigger risk.”