How robust is the U.S. economy?

In the first quarter of 2025, the actual annualized quarter-on-quarter growth rate of the U.S. GDP rapidly declined from 2.4% in the fourth quarter of 2024 to -0.3%, mainly dragged down by increased imports and reduced government spending, while the resilience of U.S. consumption is also declining. The April U.S. non-farm payroll data shows that the U.S. job market has remained relatively stable recently, and market expectations for interest rate cuts have cooled. If Trump's tariff inclination does not change, the negative impact of Trump’s tariffs and other policies on the U.S. economy is expected to continue, making the future outlook for the U.S. job market and GDP growth less optimistic. ▍In the first quarter of 2025, the actual annualized quarter-on-quarter growth rate of the U.S. GDP rapidly declined from 2.4% in the fourth quarter of 2024 to -0.3%, mainly dragged down by increased imports and reduced government spending. From the perspective of private investment sub-items, the highest contributing item in U.S. private investment is the increase in private inventories, followed by an increase in corporate investment items, but this is mainly driven by stockpiling under tariff policies, and corporate expectations for future inventories are actually declining. Leading indicators of changes in U.S. GDP private inventories show signs of decline, and the inventory expansion plans of small and medium-sized enterprises have also significantly decreased since Trump took office. U.S. corporate stockpiling behavior may weaken in the future as tariff policies gradually take effect, and the positive contribution of changes in U.S. GDP private inventories to U.S. GDP may decline accordingly. ▍U.S. corporate investment may still have some resilience, but U.S. residential investment is suppressed by high interest rates. New orders for core capital goods in U.S. manufacturing have started to increase since the end of 2024, and Trump’s tariffs and other policies may have somewhat driven an increase in investment in the U.S., with corporate investment demand still supported. However, in terms of residential investment, high interest rates continue to suppress the U.S. real estate market, with sales growth and new housing starts being constrained, and it is expected that the sentiment in the real estate market will be difficult to warm up significantly before the Federal Reserve cuts interest rates. ▍The U.S. job market remained relatively stable in April. In April, the number of new non-farm jobs in the U.S. exceeded expectations, although the data for February and March was revised down, the three-month average of new non-farm jobs is still above 170,000. The unemployment rate remained stable at 4.2%, and a broader unemployment rate indicator (U.S. U6 unemployment rate) also slightly fell in April (from 7.9% to 7.8%). The April U.S. non-farm employment report has cooled market expectations for interest rate cuts, with the first expected rate cut now pushed back to July, consistent with our previous view that the Federal Reserve needs to wait for a significant weakening of the job market before starting to cut rates. ▍Overall growth in U.S. consumption is mainly supported by service consumption, but the growth rates of both goods consumption and service consumption have declined. U.S. personal consumption expenditures fell from 2.4% (2024Q4) to 1.8% (initial value for 2025Q1), with the contribution rate to GDP declining to 1.2% (the contribution rate in 2024Q4 was as high as 2.7%), among which the quarter-on-quarter growth rates of service consumption expenditures and goods consumption expenditures both showed a decline, especially the weakness in goods consumption is particularly prominent. Under the disturbance of Trump’s tariff policies, U.S. consumers' rush to consume is reflected in a significant increase in import growth, but domestic goods consumption in the U.S. has clearly weakened due to rising inflation and declining expectations for future economic prospects, and U.S. personal service consumption expenditures have also significantly cooled compared to 2024 Looking ahead, under the backdrop of dual tightening of fiscal and monetary policy in the United States, if Trump's tariff policy remains unchanged, it is expected that the U.S. labor market will gradually weaken, and the resilience of U.S. consumer spending is expected to be further eroded in the future. ▍Subsequent U.S. economic outlook is not optimistic. If Trump's tariff inclination remains unchanged, the negative impact of Trump's tariffs and other policies on the U.S. economy is expected to continue, making the future U.S. labor market and GDP growth difficult to be optimistic about. At the same time, the Federal Reserve's restart of interest rate cuts is expected to wait for signals of worsening employment data, and will not be like the preemptive rate cuts in 2024. Market expectations for rate cuts have decreased, with the first rate cut now expected to be delayed until July. Regarding U.S. Treasury yields, we maintain our previous view that the delay in the Federal Reserve's rate cuts and Trump's tariffs are expected to keep the 10-year U.S. Treasury yield running above 4.0% for some time. ▍Review of major overseas events during the holiday: U.S. manufacturing is also deeply impacted by tariff policies, with the U.S. ISM PMI further under pressure in April. The inflation rate in the Eurozone stabilized at 2.2% in April. Preliminary statistics released by Eurostat on May 2 showed that the Eurozone's inflation rate in April remained the same as in March and was higher than expected, with core inflation rising significantly. The Bank of Japan decided to keep its policy interest rate unchanged at around 0.5%, marking the second time the Bank of Japan has decided to maintain the current interest rate level since the monetary policy meeting in March. Meanwhile, due to trade tensions, the Bank of Japan has lowered its GDP growth forecast for the fiscal year 2025 from 1.1% to 0.5%. Authors of this article: Mingming, Zhou Chenghua, Wang Nanqian, Source: CITIC Securities Research, Original Title: "Debt Market Enlightenment | How is the U.S. Economy Performing?" Risk Warning and Disclaimer The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk