Econ Intel Brief - April 30, 2025
On today's GDP print, and why Republicans should ignore Hollywood's crocodile tears.
All,
In today’s EIB, please find:
Key Takeaways on Today’s GDP Report
Real GDP growth was slightly negative in Q1 (-0.3%)
However, real final sales to private domestic purchasers was strong (3.0%)
Reminders about Real GDP and Recessions for Messaging
Republicans Should Ignore Hollywood’s Crocodile Tears
Pres. Trump’s Tariffs Will Likely Push Back the X Date
Preview of Upcoming Data Releases
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Best,
Chris
Key Takeaways from Today’s GDP Report
At 8:30am ET, the BEA announced that in Q1 2025:
Real GDP growth was -0.3%.1
This missed the “consensus” of 0.5%, but beat the GDPNow forecast of -1.5%.
Contributions of consumer spending and investment were quite strong…
But these contributions were more than offset by a large jump in imports.2
Real final sales to private domestic purchasers increased by 3.0%.
This strong number suggests that underlying economic conditions are healthy, which is also my reading of the employment and manufacturing data.
Jason Furman (CEA Chairman under Pres. Obama) emphasizes this number, which strips out noisy components like inventories, government, and imports.
Inflation remained well-above the Federal Reserve’s 2% annual target.
The GDP price index increased by 3.4%.
The PCE price index (the Fed’s preferred measure) increased by 3.6%.
At the time of release, stock futures and commodities are trading down on the news.
This is the BEA’s “advance” estimate for Q1. The “advance” estimate is based on incomplete data, and will be revised in the following months as more data comes in. In particular, next month’s revision will better reflect data on consumer services.
Reminders about Real GDP and Recessions for Messaging
To the extent that some facts are helpful for those crafting messaging on this print:
The GDP growth number is “annualized,” meaning that it expressed the total annual growth that would occur if this quarter’s growth continued for a year.
This is unlike how we usually quote other kinds of economic data! It is overstating actual real GDP growth this quarter (essentially by multiplying it by 4).
The “quarter over quarter” growth rate was only -0.1%, which is tiny. Given all the sources of error in the calculation, this decline is not statistically significant.
With the strong real final sales numbers, it is also possible (if not probable) that this figure will be revised up in the coming months. (Of course, it might not.)
The “definition” of a recession is not two consecutive quarters of negative real GDP growth. This is not a good number, but key recession indicators are healthy.
Republicans Should Ignore Hollywood’s Crocodile Tears
Hollywood is lobbying Pres. Trump for special tax breaks. Bloomberg reports that actor Jon Voight and producer Steven Paul want “federal tax incentives” for movies and TV produced in the United States. “We’re feeling the cries of people in town.”
Republicans should ignore Hollywood’s crocodile tears. It is not surprising that one of our most unionized and politicized industries is struggling to compete at home and abroad. Special giveaways to Hollywood at federal taxpayer expense is not the solution.
Pres. Trump should be reminded that major industry unions endorsed Kamala Harris in the 2024 election. (They similarly endorsed Joe Biden and Hillary Clinton before her.) SAG-AFTRA has even banned Pres. Trump from re-admission to the union.
If this Republican Congress wants to help the U.S. film industry, then it ought to:
Enact permanent, pro-growth tax reform. The industry would benefit from
permanent expensing of capital investment (e.g., cameras, stages, lights);
a permanent R&D tax credit (e.g., research into using AI to write scripts);
neutral cost recovery for building investments (e.g., studio facilities); and
a lower corporate tax rate.
Repeal 7 U.S. Code § 13-1, which makes it illegal to trade box office futures.
Futures are financial contracts that lock in the price of a future transaction. They are used by farmers, ranchers, miners, etc. to hedge against price swings.
By protecting against the risk of large product price declines, futures facilitate capital investment (e.g., drilling oil wells) and economic growth.
For asinine reasons, a provision of the 2010 Dodd-Frank Act banned futures on box office results. (As I best I can tell, this was due to heavy lobbying by MPAA, which did not want bad press whenever box office futures fell.)
Increase competition in the entertainment industry.
In his first term, Pres. Trump took a major step by terminating the outdated Paramount Decrees, which limited vertical integration of film studios.
Pres. Trump should ensure that Federal regulation puts right-to-work states like TX and GA on an equal playing field with union states like CA and NY.
Pres. Trump’s Tariffs Will Likely Push Back the X Date
Some members of Congress have asked whether Pres. Trump’s tariffs will push back the “X Date” (aka the estimated deadline for raising the debt ceiling). As of March 26, CBO estimates an X Date in August or September 2025 (but possibly sooner).
It looks like tariff revenue will register at over $16 billion in April. At that rate, tariffs revenue may be able to push the X Date back to October (the start of the new fiscal year). It is difficult to provide any precision, though, because of the irregular timing and size of Treasury outlays, receipts, and non-marketable debt issuance.
Obviously, this goes out the window if the economy enters a recession: revenue will fall (including from lower imports), outlays will rise, and the X Date will be pushed up.
Preview of Upcoming Data Releases
On May 2 at 8:30am ET, the BLS will release the jobs numbers for April 2025.
Options markets are pricing an 93% chance that the Federal Reserve will hold interest rates steady at its next monetary policy meeting (May 6-7), with an 7% chance of a 0.25% cut. The current target range for overnight rates is 4.25% to 4.50%.
On May 13, at 8:30am ET. the BLS will release the CPI numbers for April 2025.
All figures in this section expressed at a seasonally adjusted annual rate.
Imports “subtract” from the GDP calculation. This does not mean that trade reduces GDP (it doesn’t). It means that we do not count imported goods and services in our measurement of domestic economic output. Consumption and investment include those imported goods and services, so we need to subtract them out to get a clean picture of U.S. economic output.