By Gregory Heym, BHS Chief Economist and and host of Crossing The Line

This was a huge week for economic data but to save time and space, we will be focusing on the two biggest releases this week: 1Q25 GDP and the April jobs report.

The U.S. Economy Contracted at a 0.3% Rate in the First Quarter

Gross domestic product—the value of all goods and services produced in the U.S.—shrank at a 0.3% annual pace in the first quarter, slightly worse than the 0.2% contraction economists were expecting. This marks the first quarter of negative growth in three years.

While that all sounds a bit frightening, keep the following in mind:

To avoid paying tariffs, companies rushed to import their goods into the U.S. during the first quarter. This led imports to rise at a 41.3% annual rate.

The formula for GDP is C + I + G + NX
C = Personal Consumption
I = Business Investment
G = Government Spending
NX = Net Exports

Here’s how each component contributed to 1Q25 GDP Growth:

Add that all up and you get -0.3%. But if you take out net exports, economic growth would have been 4.5%. That’s a big difference. Additionally, if we also remove business investment, as it was helped by the jump in imports, economic growth falls to just under 1%. That’s a weak number, but still a positive one.

So, what does this all mean? “Tariffmania” led to a very misleading first quarter GDP report. The surge in imports subtracted almost 5% from the overall GDP number, which made it negative. The most important takeaway here is that consumers are still spending, and we are not in recession, at least for now.

Job Growth Higher than Expected in April

In yesterday’s Wall Street Journal, Greg Ip wrote an article titled “Forget GDP. It’s the Jobs Report That Matters.” He was certainly right, as the GDP report was skewed by the surge in imports to avoid paying tariffs. Now that I’ve told you to ignore the first part of this column, let’s get to the important news.

Payrolls rose by 177,000 last month, easily beating the Dow Jones estimate of 133,000. Here are the other highlights of the report:

• At 177,000, April’s job gain was higher than the average monthly gain of 152,000 over the past 12 months.
• Health care led job gains with 51,000, followed by transportation and warehousing (+29,000).
• Employment in February and March was revised downward by a total of 58,000.
• The unemployment rate was unchanged at 4.2%, in line with expectations.
• Wages rose 0.2% in April, slightly lower than the 0.3% forecast. Over the past year, wages are up 3.8%, also slightly lower than forecast. It’s worth noting that both the monthly and annual increase in wages is higher than inflation.

Despite reports to the contrary, the labor market is still going strong. While it’s true that we still don’t know exactly how many federal employees have been let go—employees on paid leave or receiving ongoing severance pay are counted as employed—the private sector continues to hire at a brisk pace.

There was a lot made this week of a decline in the number of job openings and an increase in weekly jobless claims. What those articles forgot to mention is that the 7.2 million job openings out there are still higher than before the pandemic, and at 241,000, initial claims for unemployment are well below the 362,000 average of data going back to 1967.

To sum up a long column:

1. Ignore the 1Q25 GDP report.
2. Even with “tariffmania” making everybody crazy, companies are still hiring a lot of people.
3. The unemployment rate remains incredibly low.
4. It’s still too early to be worried about a recession.

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