Moneybeat: GDP decoded

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: Time now to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. David heads up the wealth management firm The Bahnsen Group. He is here now. Good morning to you, David.

DAVID BAHNSEN: Good morning, Nick, Good to be with you.

EICHER: Well, Gross Domestic Product shrank three-tenths of a percent in the first three months of 2025; it’s only slightly worse than expectations, but it leads with a minus sign. Now, you’ve pointed out there’s more happening “under the hood” than what the headline tells. So can you walk us through why a big jump in imports and investment pulled-forward drove that number, and why Q1 may not paint the full picture of where the economy really stands?

BAHNSEN: Well, there is a concern here and a caveat for us truth tellers that requires more unpacking. I’ll start with where I think we’re headed.

I am not saying what I’m about to say about Q1 GDP because I’m cheerleading the economy. I’m not. I think we’re in a very precarious position. I think it’s extremely likely that we do dip into a recession. I’m pessimistic about what the impact will be of what we’ve done so far in the trade war and the general business uncertainty that’s been created here over the last six weeks or so. I think it’s very likely to end poorly.

That said, the Q1 GDP report you’re asking me about is a little bit different. Now, the headline of contracting 0.3% when the expectations were for expansion of 0.3, there’s no question that’s problematic.

And Nick, if we do have a negative GDP in Q2, that’ll be two quarters in a row. We all remember what happened in 2022: I wrote an article for WORLD about it back then—where I suggested that even though we did have two quarters of negative in GDP, it doesn’t necessarily mean recession. I ended up being vindicated in that.

But this Q1 had a significant number of increased imports, and the formula for GDP does call for net exports, okay? (That’s exports minus imports.) But what happened here is, because a bunch of people worried about tariffs coming—this is before the April 2 announcement—they were pre-ordering a lot. So that added a spike to the number. The business investment number was also very high, although a lot of that was also pre-ordering of things concerned to capital investment that would be tariffed later. So Q1 is just a mystery in the sense of various things done in advance. They were altered behavior, Nick, in advance of expectations.

That’s not exactly the normalized behavior. There’s an event-driven factor here. I’m interested in normalized behavior. What are businesses doing? What are consumers doing? What is the production level in the economy? What’s the hiring? On that front, the Q1 number wasn’t really that bad. But I think the Q2 number will be.

So, how’s that for a muddy answer? I don’t have a good ending to report, but I don’t think Q1 is a great argument for the difficult ending.

EICHER: We got three key employment data points last week: ADP showed a rise of just 62,000 private payrolls in April. We had weekly jobless claims ticking up. But the government number—the Bureau of Labor Statistics—logged a pretty solid 177,000 jobs added.

So how do you make sense of all this, and what should we be looking for to discern trends?

BAHNSEN: Well, you had a little bit of conflicting data—more or less.

The ADP number and the weekly jobless claims number were weak. The BLS number and the household survey were pretty good. Therefore, my best answer is, let’s look at it next week, next month.

Conflicting data makes it impossible to form a high-conviction answer—unless one is looking to find an answer just to coincide with their priors. You want to predict a bad jobs environment or a good jobs environment, so you cherry pick the reports that help confirm your biases. I don’t want to do that, and yet the data is quite conflicted.

Now the Bureau of Labor Statistics, the main jobs figure, showed 177,000 jobs in the month of April, above expectations. But there were downward revisions in January and February totaling negative 58,000.

The most interesting thing to me was that only 9,000 government jobs were shed. Everyone is saying, “Oh, wow, that’s really good. We thought it was going to be a lot worse.” It doesn’t appear to have been that bad. But see, I think there’s also some that thought they were cutting a lot more than that at DOGE from a government-spending standpoint. Nine-thousand jobs is not very many, compared to the millions of government jobs that are out there.

So, there are many things to look to there, but the ADP number and the BLS number often they come out in the same week—at the beginning of every month. The weekly jobless claims are obviously weekly. The ADP and BLS number is often telling a different story, so that’s why it takes a few months to get a trend. The weekly jobless claims, we’ll follow that, and I guess you and I will have to talk about it again next week.

EICHER: Also last week, we got the White House budget proposal for the new fiscal year. It leaves the big pieces in place, Medicare and Social Security. But it touts a $163 billion reduction in non-defense spending and trims NIH, climate programs, and public broadcasting—while boosting border security. How do we distinguish genuine deficit-reduction from “window dressing”—and what would you call a real win in this budget debate?\

BAHNSEN: Well, none of it is a win—or even could be a win—in the sense that it isn’t legislation. The Trump budget isn’t going to be what Congress passes. So, for me a win, whether I like a budget or I don’t, it has to actually be the budget that becomes law. Again, this isn’t going to be that. But it gives some indication of what Congress wants to do if it wants to coincide with the president’s wishes. It’s the majority party in the White House and the Congress.

How do I say this delicately? It does exactly what he said. He promised he wasn’t going to touch entitlements, and he didn’t touch entitlements. But if you’re not going to touch entitlements, then you’re not going to do anything about the deficit. So, we are in a position where we’re handcuffed as fiscal conservatives, because we are saying two things at once: One is that we believe we have to cut the deficit and pay attention to the national debt.

So you can talk about NIH, and about this program or that, and government efficiency. You can do fraud and waste, do all you want. If you’re on the left, you can even increase some taxes here and there. Either party talking about the budget and not talking about the long-term commitments in Medicaid, Medicare, and Social Security is not serious about the debt. That’s just the bottom line.

So this budget reflects that non-seriousness. Now in the short-term political reality, we’ll see how they ultimately reconcile. Because they’re not going to get a bill passed if there isn’t at least window dressing of giving attention to the deficit—because there’s at least a couple fiscal hawks in the House on the Republican side that won’t vote for it if it doesn’t. They have to somehow get some tax cuts in there and then get some spending cuts to make it match to a budget.

If they told the budget, Nick, let’s add to the deficit $5 trillion and then that was passed, then they could do 5 trillion of tax cuts. But they can’t add to the deficit $5 trillion because they won’t get the votes. So, they have to pass a budget that is scored as doing something reasonable on deficit, that satisfies fiscal hawks, and then do tax cuts that match that.

Here’s the challenge: Making all this math work. I still am confident they’re going to get a deal done. I don’t really think they have much choice. But how they’re going to do it, my hope is, in the end, somebody will be honest to make the argument that you’re not cutting Medicaid by cutting the growth of Medicaid. That Medicaid spending does not need to go up from current levels, another $800 billion. That we could just simply limit the growth of Medicaid, and you’re not cutting Medicaid. And then you have a lot of budget availability there for some of the other things they want to do.

That’s where I’m hoping we go. And then at some point in the future, we’re going to need some grownups in the room to deal with Social Security and Medicare long term.

EICHER: David Bahnsen, founder, managing partner, and chief investment officer of The Bahnsen Group. David writes at WORLD Opinions and at dividendcafe.com. Thanks … we’ll see you next week!

BAHNSEN: See you next week, Nick, thanks so much.

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