Economic Briefing
Q1 GDP Estimates Plummet as Concerns Over Tariffs and Layoffs Weighs on Investment
The Atlanta Fed GDPNow estimates have fallen sharply in the last several weeks. This measure tracks economic releases throughout the quarter and keeps a running tally of Gross Domestic Product. After showing Q1 growing at nearly 2.3% early in the quarter, recent data has shown it plummeting into contraction of -2.8% of late, largely being driven down by inflation-adjusted personal consumption expenditures (consumer spending) and inflation-adjusted private investment into homes, new equipment, new structures and expanding existing ones, etc.
Some analysts are also pointing to a surge in net imports as being responsible for some of the reversal – much of which was skewed because of an increase in gold imports. Because of the value of gold, it can have a disproportionate impact on net trade balances (an ounce of gold can equal hundreds if not thousands of small imported or exported products – and can quickly skew broader trade data).
But there is no underestimating the impact of concerns over tariffs and government budget cutting (which is hitting both government and private sector contractor sectors) and how that is pushing many executives to take a “wait and see” attitude into investing and spending. And this pullback on spending in the interim is showing up as a result.
That being said, if a deal on Canada and Mexico tariffs were to be struck in the near term (a softening of tariff stance against both or either), markets and sentiment may change quickly. And again, for many companies, economic activity and current profitability are still strong. Many are sitting on a lot of cash and consumer spending is generally good (which drives more than 70% of GDP). The current impact on economic activity is largely sentiment driven, and sentiment can quickly change, and the potential for investment and spending to reverse course quickly is high.
Trade War Uncertainties
March 4th ushered in the imposing of tariffs that many have been concerned about. What many analysts were waiting for was to see what the final application of tariffs would look like; would it be a blanket tariff on trading partners or surgical tariffs on specific products? With the first wave of tariffs being applied on 25% of all imports from Mexico and Canada as well as an additional tariff of 10% on China products, a real trade war is seemingly underway (for now).
China has already retaliated with tariffs of their own on $36 billion in products imported into the US. This is a somewhat punitive retaliation at this point, the US tariffs are to be applied to more than $525 billion in goods. China’s retaliatory 10% tariffs were aimed at agricultural products like soybeans, pork, beef, and fruits starting March 10th and additional higher tariffs of 15% being imposed on chicken, wheat, corn, and cotton. The Trump Administration accused China of devaluing its currency since the beginning of the year to soften the blow from 10% tariffs, which is why they bumped an additional 10% on most goods to eliminate that strategy.
Nearer to the US, Canada has retaliated with 25% tariffs on orange juice and bourbon and has others in the works. Canada’s problem is that it is in the midst of a change in leadership, and getting support for a strong response to the US is more difficult to secure and gaining a collective strategy on how to respond to the US is still a challenge. Mexico has yet to impose retaliatory actions at this stage, leading some analysts to believe that negotiations are still ongoing behind the scenes, and a “deal” is in the offing to reduce US tariffs. Settling on blanket tariffs of 5-10% on Canadian and Mexican goods is where most forecasters are placing their bets. This is an evolving story, and conditions will change quickly because of back-and-forth negotiations.
US Manufacturing Holds Steady in February, But Concerns Are Growing
The US Manufacturing Purchasing Manager’s Index as measured by S&P Global showed that the index moved from 51.2 in January to 52.7 in February. This was an improvement and continued a growth trajectory that has been improving for the past three months (a reading over 50 signals that the sector is expanding). But some worry that this growth could be short-lived. Optimism in the manufacturing sector is generally good but fears over tariffs and how that might affect the flow of component parts and raw materials are weighing on many. Some manufacturers mentioned that customers were pre-ordering merchandise to try and get ahead of potential tariffs (especially to get ahead of reciprocal tariffs on US export products being imposed by Canada, Mexico, China, and others).
Inventories are generally lower and that has the global supply chain back in-cycle. But whether new orders will continue to flow is still in question, and much of that will depend on US construction activity and consumer and business spending in general (on retail goods, technology and equipment, expansion and automation).
Inside This Edition
Trade War Uncertainties
March 4th ushered in the imposing of tariffs that many have been concerned about.
US Manufacturing Holds Steady in February, But Concerns Are Growing
The US Manufacturing Purchasing Manager’s Index as measured by S&P Global showed that the index moved from 51.2 in January to 52.7 in February.
Could Maritime Shipping Prices Fall Further or Have They Bottomed?
The latest Drewry Spot Container Index has largely plummeted vs. last year (which, granted, was elevated at the time due to Red Sea impacts).
Trucking Signals Improve in February
Several readings on trucking activity in the US improved in February, despite waves of winter storms, wildfires, and other factors that may have temporarily impacted freight flows and distribution.
Air Cargo Prices Mixed
The US Bureau of Labor Statistics and Department of Transportation releases an air cargo inbound and outbound index.
Transportation Briefing
Could Maritime Shipping Prices Fall Further or Have They Bottomed?
The latest Drewry Spot Container Index has largely plummeted vs. last year (which, granted, was elevated at the time due to Red Sea impacts). The composite index has fallen 25% year-over-year with the average container spot rate at $2,629.
Trade lanes between Asia and the US are also down (partly due to the impact of the Lunar New Year). Rates between Shanghai and LA are down 22% and Shanghai to NY are down 21%.
Sharper declines were seen in trade lanes between Asia and Europe, Shanghai to Rotterdam lanes are down 34% and Shanghai to Genoa are down 21%.
In the prior Trump term, even amid tariff impacts, trade flows did not change dramatically. It is possible that the full impact of tariffs was not yet experienced before COVID hit, and then the global lockdown changed everything. Reshoring activity accelerated in 2022 and 2023 largely on global supply chain disruptions and realization that too many products were being single-sourced. This time around, amid slower global economic activity, shipping rates could be impacted more, and trade flows could slow under the weight of shifting sourcing patterns that were already underway and the impact of tariffs and slower consumer spending.
Trucking Signals Improve in February
Several readings on trucking activity in the US improved in February, despite waves of winter storms, wildfires, and other factors that may have temporarily impacted freight flows and distribution. The Producer Price Index headed into February was mixed, truckload prices were up marginally between December and January by 0.3% but they were sharply higher by 6.4% between January of 2024 and 2025.
Less-than-truckload prices showed a similar pattern but were sharply higher. LTL prices for January were 5.7% vs. December and were up sharply by 6.2% year-over-year. These prices reflect both spot and contract rates and include fuel.
Spot rates for truckload were also higher. DAT Trendlines showed that demand was nearly 14.8% higher February Y/Y while capacity was 35.9% lower than this time last year. As a result, there were 67.5% more loads looking for trucks with wide-spread load-to-truck ratios above 5.5 loads for every available truck. These ratios were significantly higher than the past two years. Spot rates had not yet responded to these changes, rates were still showing just 0.5% increase and fuel surcharges were down 9.5% Y/Y. But this could change in the coming months, assuming that some of the domestic freight flows continue.
Air Cargo Prices Mixed
The US Bureau of Labor Statistics and Department of Transportation releases an air cargo inbound and outbound index. The inbound index for international freight was up 17% year-over-year, suggesting that there were still some good inbound freight volumes flowing through January (latest data available). But it was down sequentially by 2.3% month-over-month and was likely impacted heavily by seasonality.
The outbound air cargo freight index was up 5.3% month-over-month and was up 3% year-over-year. The timing of the Lunar New Year was also a factor that would have impacted some volume in January but might soften a bit when February data is released. Any efforts to get in front of tariff risk or the Lunar New Year holiday would have worked their way through the industry this month. With maritime rates lowering and the impact of tariffs pushing some purchasing managers to try and trim other supply chain costs to compensate, that could put some pressure on certain sectors.
