Imports are a subtraction in the GDP accounting formula. So despite on-trend increases in consumption and investment, economic activity is “down” because businesses frontloaded imports ahead of tariffs.
In other words, it’s an accounting artifact, and you can expect an unusual “rise” in GDP to follow in the coming months as imports reverse course.
But the GDP report is just one of many alarming headlines. JP Morgan thinks there’s a 60% chance of a recession in 2025, consumer sentiment is back to pandemic-era lows, and the stock market is having its worst downturn in years.
It’s natural to feel uncertain right now. Nevertheless, there might be reasons for cautious optimism as well. Let’s take a look.
And if you’re navigating strategic planning in this unpredictable climate, our team can help make decisions grounded in clarity rather than noise. Reach out for a free consultation. We’d be delighted to share how we can help.
A Little Skepticism Is Good
The trouble with economic reporting is it’s so focused on the present moment, small fluctuations can be blown out of proportion while genuine long-term trends go unnoticed.
For example, the BLS report grabs monthly headlines. While reporters clamor to share how many jobs we’ve gained (or lost), they neglect to share that labor force participation has declined ~5% since the year 2000.
In other words, if we included people who have given up on finding work altogether, the unemployment rate would be ~9%. In the context of often-reported “tight” labor markets, isn’t that worth knowing?
This quarter’s GDP dip isn’t necessarily a signal to cut back. Rather, it’s a sign to look at your own business, assess what changes you’re personally witnessing, and plan for the future.
Top-Line Statistics Are Useful, but Flawed
Not only is economic reporting overly focused on the now, but the statistics we focus on have flaws as well. It’s natural to look for simple ways to discuss complex issues, but the more information we aggregate at once, the less useful it is.
- GDP was invented to measure output, but quickly evolved into a stand-in for the overall well-being of a nation. However, the metric’s inventor specifically warned us not to do so. GDP doesn’t reflect whether growth is sustainable, if supply chains are vulnerable, and often includes technical adjustments that obscure the actual output of an economy.
- Inflation uses an “average” basket of goods to measure price changes. But average for who? Cost of living varies from city to city, and spending habits for college students are wildly different than retirees or parents with children.
- Unemployment counts people actively looking for work, but excludes those who’ve stopped looking altogether. If we included them, unemployment would be at ~10% relative to the year 2000.
- Stock Market Indices are reported as if they reflect the economy at large, but in truth, say little about broader economic activity.
Instead of reacting to macroeconomic news, dig into the details of your own business. Are your pricing strategies positioned to handle higher input costs? Can you strengthen or diversify relationships with suppliers? And can you take advantage of resilient consumer demand, while you still can?
Hidden Strength in Recent Data
With healthy skepticism in mind, it’s important not to overlook positive news. When the BEA reported that GDP dropped, it was scary. However, their reports have a lot of detailed information, much of which was good news.
Compared to Q4 2024:
- Total employment is up
- Employee compensation is up
- Real disposable income is up
- Consumer spending is up
- Exports are up
- Domestic private investment is up
It’s impossible to say what the future will hold. But for now, none of the worst-case predictions of tariff fallout are appearing in macro data.
For businesses planning ahead, now may not be the time to pull back; consumers remain resilient, and the market hasn’t yet pulled back. Additionally, rising compensation may increase payroll pressure. Is it time to review hiring plans and retention strategies?
Long-Term Trends Present a Nuanced Picture
Looking beyond quarter-to-quarter fluctuations and top-line statistics, the economic picture is more complex, but perhaps more optimistic, than headlines suggest.
- Entrepreneurship is strong, with new business formation and venture capital investment far outpacing their respective pre-pandemic baselines.
- R&D investments are at record highs, both in nominal terms and as a proportion of GDP. Companies that underinvest now may find themselves left behind in two or three years.
- Net energy production exceeded consumption for the first time in 2023; we’re officially energy independent.
- Mortgage delinquency rates are holding steady at historical lows, indicating American homeowners are in solid financial shape.
- A record high percentage of Americans have health insurance, reflecting an increase in the number of people who can afford coverage.
There are also persistent struggles to be concerned about. In a consumer-driven economy, the middle class isn’t thriving as much as one would hope:
- Inflation rates have leveled off, but cumulative price increases from recent years remain a struggle, and tariffs could worsen this.
- Real median wages have been stagnant for decades. After accounting for inflation, they’re only ~10% higher than they were in the year 2000.
- Nearly 40% of people would struggle to cover a $400 expense with cash.
Taken together, long-term trends reveal an economy with real strengths and challenges. For business leaders, the challenge is to stay grounded, focus on their sector and customers rather than the news, and to make the most informed decision possible.
Tips for Navigating Through the Noise
- If tariffs are impacting your business, you’re probably already exploring new suppliers or raising prices. Before you make any major changes, check if you can minimize costs or maximize cash flow with these advanced accounting strategies.
- Do you need financing? Look into getting an SBA loan. They supported over $50B in funding last year, their terms are often the most affordable on the market, and there’s a decent chance you’ll qualify. And if not? It’s perfectly possible to get a business loan, even with bad credit.
- If financing isn’t an option, but you still need additional expertise, consider issuing equity to advisors rather than compensating them with cash. It’s common in the startup world, and can be extended to small businesses as well.
- The news may say one thing, but is it reflected in your revenue and cost figures? It’s tough to make informed decisions without real-time data about your business. An outsourced accounting system might be worth looking into: you get to save time on DIY accounting while spending less than you would on a full-time or in-house team.
Conclusion
Despite the unsettling headline, Q1’s dip in GDP was an accounting artifact. But a deeper look at the data reveals a more balanced, perhaps optimistic, story. For business owners, the key is not to overreact to noise, stay informed, and use this moment to tighten your strategy.
At indinero, we help businesses do exactly that. By providing outsourced accounting and financial advisory services, we give you real-time visibility into your company’s performance. If you’re navigating uncertainty and want support making decisions based on hard data, reach out for a free consultation.
