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Good morning. Somehow behind the history of the Trump price, the history of AI is still in progress. Microsoft reported Growth of 20% in his Azure company, driven by the demand for AI services. Microsoft and Meta confirmed their intention to continue to invest extravagantly in the data centers. Maybe we could focus on this, rather than the White House, for a few days? Send us an email: Robert.armstrong@ft.com And aiden.reiter@ft.com.
GDP: before and after
Most of our American economy measures are like half “before” of one of these “before and after” advertisements for dis-aging, liposuction or dandruff shampoo. What we really want is the “After” image, but it is not yet available. We must therefore be satisfied with a meticulous study of the “before” image and some educated assumptions on the effects of miracle treatment.
The treatment, of course, is the ultra-high pricing diet of Donald Trump, which was deployed on April 2, just at the start of the second quarter. Thus, this day throws a shadow on the GDP report of the first quarter, which landed yesterday.
But the report was a pleasant surprise. The “before” image looks pretty good.
Yes, the growth in titles was negative of 0.3% – but this number is an artifact of a massive increase in imports, which led to the number of major titles up to 4.8%. Imports are subtracted from GDP because they are not produced in the country (not the “national product”) and to avoid counting them in double in consumption and investment. If the overvoltage of imports was really demand, it should be a distortion that will be washing over time.
We will come back in the sense of the import explosion in a moment. First look at the strong aspects of the report. Real household consumption, the main engine of the US economy, increased by 1.8% and real final sales To national buyers, which are consumer spending plus private investments fixed to the exclusion of stocks, increased by 3%. Given surveys on consumer feelings and small miserable businesses in recent months, it is a real relief.
But on the investment side of things, the figures become a little more difficult to interpret. Private investment increased to an annualized rate of 22% compared to the previous quarter. Almost all of this was a huge leap in computer equipment purchases which brought by themselves almost a complete percentage point to GDP. It seems very likely that this is due to the that companies rushed to meet the long -term needs of world suppliers before prices. But how much? And to what extent is the high demand for the EC economy? We do not know, and the answer makes a big difference in our reading of the force of the economy.
There were proofs of features that advance the request elsewhere in the report. Again, the interpretation of the figures is delicate. A huge accumulation in business inventories has contributed to more than 2 growth points for GDP. But in a footnote, the Bureau of Economic Analysis declares: “Estimates of private stock investment were based mainly on the accounting value data of the Census Bureau and a BEA adjustment in March to take into account a significant increase in imports.” Our colleague Chris Giles translated this for us: there is difficult data on the overvoltage of imports, which can be counted as they come from ports. The inventory numbers, on the other hand, are mainly the product of models and estimates that use import overvoltage as input. Consumption may be significantly higher than these figures indicate, and the inventory is built below, or vice versa, and the difference is important for our growth assessment.
A last crucial aspect of the report: inflation. Personal personal consumption expenses in price inflation, the preferred measure of inflation of the federal reserve, fell a bit monthly and annual, but are still higher than an annual rate of 2.6%.
Summary: Consumption growth comes down well, but does not accelerate; Commercial investment also looks good, but the tariff effect obscures this image; And inflation drops but is not quite there that it must be. For us, it looks like a formula for Fed's leash rates where they are at the meeting next week and perhaps longer (the long-term market involves four reductions of 25 base points at the end of the year; there are six meetings).
A beautiful photo “before”, then. What if something can we say about “After”?
We have good reasons to think that the consumer has continued to manage well since April 2. Tuesday, Visa reported that payment volumes on its American network increased by 6% in the first quarter, in accordance with the results of recent quarters, and volumes really took a little in the first three weeks of April. Here is the CEO:
We have not noted any sign of overall weakening of consumer expenditure. Although the growth in spending differs between consumer spending bands, with the fastest growing growing growing, all bands spend resilients and consistent with the previous quarters. In the categories of expenditure, there are certain selected areas such as trips with airlines and accommodation where growth has decelerated, but overall and non -discretionary discretionary expenses remain strong.
But consumers have not yet felt the effect of prices, either at higher prices or in unavailable products. And few companies have still had to make difficult choices on the advisability of absorbing tariff costs, transmitting them to customers or simply ceasing to import certain products. Most of them will always have a pre-burn inventory to burn while they pray for a change in policy. But the moment of truth approaches the deliberate speed of a cargo. From flight Sunday:
The port of Los Angeles, the main entrance route for goods from China, expects arrivals planned during the week from May 4, to a third less than a year earlier, while air managers also reported net falls in reservations.
The reservations for shipping containers of 20 standard China in the United States were 45% lower than one year earlier in mid-April, according to the latest available data from the container monitoring service.
Unless a rapid and significant price rise, the “After” image will be fully developed by this summer.
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