The Journal. - Is the Economy… OK?

Episode Date: May 6, 2025

For months, questions have been swirling about the economy. And last week, we finally got some answers when all kinds of economic data was released. Some of those numbers seemed to say that the economy is headed toward a downward slump, but WSJ’s Jeanne Whalen explains that the picture may not be as dark as it seems at first glance. Jessica Mendoza hosts. Further Listening: -Trump 2.0: Where Is The Economy Headed?  -A Tariff Loophole Just Closed. What That Means for Online Shopping  Sign up for WSJ’s free What’s News newsletter . Learn more about your ad choices. Visit megaphone.fm/adchoices

We're going to start with some breaking news. New data coming out just as we come on the air shows that the U.S. economy shrank for the first time in three years. GDP down 0.3 percent. Contraction. We haven't seen that since 2022. Last week, a lot of economic data came out, and the headlines seem to highlight a bunch of declining numbers. The fact that we have a decrease in growth, that is never good. How people feel about the future of the economy and their finances, lowest level since 2011.

Wall Street is now looking at this and thinking, are we heading for that recession that many of us are in? But our colleague Jean Whelan, who covers the economy, sees those numbers a little differently. Despite all of these shocks happening to the economy with tariffs, with Doge and the government cuts, the underlying economy has remained fairly strong. And if you had to summarize what's happening with the U.S. economy right now in one word, what would that word be? I have two words. Two words is good.

Holding steady. Holding steady. Why? Why is that? There were a couple of data reports last week that showed that the economy is holding in and is more stable than many thought. Welcome to The Journal, our show about money, business, and power.

I'm Jessica Mendoza. It's Tuesday, May 6th. Coming up on the show, what exactly is going on with the U.S. economy? Economists use a lot of data points to give a snapshot of the economy. Three of the biggies are the GDP, the jobs report, and inflation. We asked Jean to break down the numbers for us. So the GDP, that means gross domestic product. And what that is simply is that's the value of everything that we produce in the United States. The value of all goods that we produce, like apples and sneakers and furniture, and it's the value of all services that we produce here, haircuts, manicures, legal advice.

GDP also includes things like consumer spending and exports. At its most basic level, the GDP reflects the health of the economy. So let's talk about that GDP report. We got the latest GDP report last week. What did this say about the economy? So the GDP report actually on its face looked not great. It showed that the economy shrank by 0.3% in the first quarter. Actually, though, the shrinkage was a little bit of an accounting trick.

Jean says that to understand that shrinkage, we need to look at how the GDP is calculated when it comes to imports. What GDP is, it's the value of everything we produce in the country, goods and services. It's apples and sneakers and haircuts and manicures. So we look at how much consumers spend, we look at how much businesses spend, and we look at how much the government spends on goods and services. And then we also add into that total everything that foreigners spend on stuff that we export. And then we get that big number and from that big number, we subtract all of the stuff that we import into the country. And so that's how we calculate the value of everything that the U.S.

is producing each quarter. So when imports really surge, when they go up a lot, we're subtracting a lot, a big number from that total number. And we, this past quarter, imported way more than we normally would because of this fear about tariffs. So after Trump won the election last fall, a lot of companies started immediately bringing in a lot more goods because he had talked during the campaign about tariffs. He was going to start using more tariffs. Right. That was a big story for a while. People just like stockpiling stuff as much as they could.

Exactly. We had a huge surge in imports because a lot of businesses were trying to import a lot of stuff before the tariffs hit. And so does that mean that the data kind of looks worse than it actually is? I think that that is how economists would interpret this past quarter. In other words, if you take away the bump in panic buying imports, the GDP right now

would likely look different. So it sounds like the GDP in this moment is heavily reflecting imports, which has to do with tariffs. How much of what we're seeing now is because of Trump's policies? So some of what we're seeing right now reflects Trump's actions and some of it doesn't. So the GDP report, for example, covers January, February, March. Trump took office at the end of January. So part of the GDP report was during Biden's term, obviously.

And it takes time for a president's actions to make a mark on the economy. And of course, some of those tariff actions will take a little while longer to appear in prices and in what's on our store shelves. So we're not really seeing that yet. So would it be fair to call it a transition economy? Like a Biden-Trump transition economy at the moment?

I think that's right. Yeah, sure. I mean, if we're going to say this is Trump's GDP report, we'd want to look at a quarter when he was in office for all three months, right? But yes, I think it's fair to look at this as a transition period. President Trump has said that any economic slowdown

is worth the sacrifice, that it would be short-term pain for long-term gain. The two other key metrics that everyone is looking for at this time period are inflation and jobs. The most up-to-date inflation data comes out next week, but we do know what's going on with unemployment. There had been a lot of bracing for a bad job report this time around because I think economists thought, well, we've had several weeks, but more than a month of some of these tariffs now and some businesses might be really cutting back a lot on hiring. But in fact, we saw that there were more jobs added last month than many economists thought. And overall, businesses have also so far been pretty reluctant

to cut workers. They're not hiring at the same furious pace that they were several years ago after the pandemic. But they're not really laying people off, partly because we've had this labor shortage, because they're worried about being able to find people again if they need them in the future. And so the overall picture looks actually still pretty good.

Right. It's almost more of a wait and see kind of situation before they commit to any particular direction when it comes to its employees. I think that's right. That is really interesting because I'm based in DC and have friends who are in this bucket, you know. The narrative is definitely people are losing their jobs. But it sounds like bigger picture across the country that that's not necessarily the case.

I think you're right. There has been a lot of focus on the government layoffs, which have indeed been very stark for DC and other communities. But they haven't been big enough yet to create a real dent in the national labor picture. According to the Department of Labor, job growth was in health care and finance. Another category that was way up was transportation and warehousing, which economists think was about managing the surge in imports.

Okay, so the economy is doing better than it might seem. So why are people so worried? That's coming up. Hey, wouldn't it be great if life came with remote control? You know, you could hit pause when you needed to, or hit rewind, like that time you knocked down that wasps nest. Well, life doesn't always give you time to change the outcome, but prediabetes does. With early diagnosis and a few healthy changes, you can stop prediabetes before it leads to type 2 diabetes. To learn your risk, take the one minute test today

at doihaveprediabetes.org. Brought to you by the Ad Council and its prediabetes awareness partners. While Gene says the economic picture isn't so bad, there are a lot of bad vibes out there, including one especially scary word, recession. The risk of a recession is rising. Recession.

JP Morgan upping its recession. So could this GDP contraction be the start of a U.S. recession? What does this mean for a recession? We may already be in a recession. In early April, a survey by the Wall Street Journal showed that economists thought there was a 45% chance of recession in the coming year. And other surveys have shown that consumer sentiment has started to sour. There are a lot of surveys that are coming out now.

So different groups survey US.S. consumers and businesses. And those surveys have really been looking more negative over recent months. Businesses and consumers have grown a lot more worried. And some are saying, we're not planning to spend as much this year. Businesses have said that we're maybe going to cut back on some of our capital spending. That could slow down the economy for sure if businesses and consumers are spending less. But that has not yet quite translated into the numbers at this point, is what you're saying. That's right. The uncertainty of it all is the main problem. The businesses that I speak with say, everything is on hold right now. And there are some exceptions to this, which I can get into.

But a lot of businesses are saying, look, we don't know what's going to happen tomorrow. We don't know whether we're going to be paying a 145 percent tariffs on things from China or 50 percent or 5,000 percent. We don't know. And so we're not going to build that new factory right now. We're not going to hire a ton of new people right now because things are so chaotic and it's very hard to plan when you don't know what's going to hire a ton of new people right now because things are so chaotic and it's very hard to plan when you don't know what's going to be tweeted about tomorrow.

So what would need to happen for the economy to continue to hold steady or avoid a recession? Like would more certainty help? More certainty is always better. Absolutely for the economy. The more certain everyone is that things are going well, the more likely they are to spend and to keep the economy growing. What would it take to get more certainty? I think if President Trump really rolled back his tariffs and said, okay, we've reached

trade deals with all of these countries and we're lifting these emergency tariffs and we're not making any more changes, that would create certainty. It would also create certainty for him to say and really mean, look, I'm not rolling back these tariffs. The 145% on China is here to stay. All of these other tariff levels, the 10% universal tariff I put on goods from all countries is here to stay. We're not making any changes.

That would create more certainty for companies where they could at least start planning with some knowledge that, OK, now this is the new reality. We've got to plan for this. I'm not saying that that would make the economy keep growing strongly. I think if we have 145% tariffs on China for good, that would be really rough for our economy for a long time, but at least it would create some certainty that would allow companies to start making adjustments. Adjustments that they know that they can stick to for a period of time.

Exactly. As businesses worked through all that uncertainty, tariffs against China went into effect, and cargo shipments from China have started to fall. This is a transition economy, transitioning to what we don't really know yet. There are tons of fears that we're heading to a worse place, and there is some hard data to show that those fears are warranted. And the biggest piece of hard data, I would say, is this huge decline in shipping traffic from China. I think that is the data point that everyone is focused on right now. What will the lack of those ships do to our store shelves and to prices? But at the moment, we're still a little bit in this holding pattern where the collapse of the arrival of the ships hasn't quite happened yet.

And the economy still looks pretty good. So we're in a holding pattern. What does all this say about the state of the U.S. economy? It shows that we have a really resilient economy. It has been able to withstand a lot of the early shocks from the Trump administration. And it's wise to kind of reserve judgment, I think, over the next several months until we see more data and not to just assume that the sky is falling. If it is falling, we'll see it and we'll see it in the next three, four, five months. That's all for today, Tuesday, May 6th. The Journal is a co-production of Spotify and The Wall Street Journal.

Additional reporting in this episode by Justin Layhart. Thanks for listening. See you tomorrow.