05/02/25 Afternoon CommStock Report – GDP Shock Balanced by Solid Jobs Report

Traders were caught surprised by the latest reading on gross domestic product (GDP) showing contraction of the economy. Reversing sharply from 2.4% growth in the fourth quarter of 2024, GDP was measured smaller by 0.3% in the first quarter of this year. The report sounded alarms about a potential recession, which is generally defined as occurring when GDP growth is negative for two consecutive quarters.   The standard formula for GDP is that it is equal to the sum of private consumption, business investment, government spending, and the net balance of export and import activity. Two factors that stood out as the primary contributors of the contraction were lower government spending and higher imports. Both items were linked to new federal policy changes involving public employment cuts and tariffs. Government spending and imports are also components of GDP that are expected to shift less damaging to growth potential through the rest of the year.   Government expenditures alone were down 5.1% from the previous quarter, reduced to their lowest level in about three years after efforts by the Elon Musk-led Department of Government Efficiency started trimming government payrolls while cutting or holding back funding for various federal programs. Private research…