Brief: Chicken Little Headlines

Mobius Intel Brief:

A deluge of Chicken Little ‘the sky is falling’ headlines hit the newswire today with narrow interpretations of recent U.S. economic data, such as the negative first quarter GDP print published by the Bureau of Economic Analysis this morning.

Key Intel

Today’s 1Q25 -0.3% GDP print warrants caution, not concern. Table stakes scrutiny of the BEA’s first-quarter publication reveals that, stripped of importers’ Jan-Mar race to secure consumer goods, U.S. economic activity remains historically healthy.

• Importers impact on the U.S. GDP data was foreshadowed by yesterday’s advance Census trade data, which showed the U.S. goods trade deficit surged 9.6% M/M to a new record of -$162 billion on a record increase in inbound consumer goods.

• The U.S. goods trade deficit has set new records in three of the last four months. The only non-record in the mix, February’s -$147 billion goods trade deficit, is $27 billion greater than any monthly deficit before President Trump won November’s election.

• A look beyond the short-term impact of Jan-Mar trade deficits on 1Q25 GDP shows 1) imports will likely soften materially in Q2 while 2) demand for U.S. exports will likely see a series of tailwinds emerge from ongoing trade talks. Both suggest Q2’s GDP print will invert to higher growth.

In addition to upside support for U.S. export growth (+GDP), Q2/Q3 trade deals should be monitored and evaluated against current sentiment in global commodity markets.

• India’s role as the next driver of global crude demand growth will gain tailwinds from a stronger alliance with the U.S. consumer economy. Plans to move manufacturing from China to India have already been announced (Apple) and anecdotal commentary suggests more will emerge imminently.

China & The Fed’s Preferred Inflation Metric

• China’s official manufacturing PMI survey showed sector activity contracted (49.0) in April from a 12-month high of 50.5 in March—a likely result of reduced goods demand after importers’ surging purchases in 2024/1Q25. However, the CCP’s statistics contrast against S&P Global’s Caixin manufacturing PMI that showed Chinese manufacturing activity expanded (50.5) for the seventh consecutive month in April.

• U.S. inflation (PCE) was flat (0%) in March and gained 2.3% Y/Y, the lowest annualized rate since Oct. Core PCE inflation (stripped of food/energy) was flat (0%) M/M and gained 2.6% Y/Y, the lowest annualized rate since Mar 2021. Core PCE is the Federal Reserve’s preferred inflation metric and improves the odds for more (or larger) rate cuts than the market presently anticipates. Lower energy costs in early 2025 will pass through to the Fed’s non-energy metrics via cheaper transportation, raw materials, and final production, providing additional tailwinds for near-term disinflation.

This commentary contains our views and opinions and is based on information from sources we believe are reliable. This commentary is for informational purposes, should not be considered investment advice, and is not intended as an offer or solicitation with respect to the purchase and sale of commodity interests or to serve as the basis for one to decide to execute derivatives or other transactions. This commentary is exclusively intended for Mobius clients and is not considered promotional material.