The market is reacting to slowing growth, with the Atlanta Fed Q1 GDP tracker dropping from +2.3% to -1.5%. This marks one of the steepest declines for this index.
Recent data from the US Bureau of Economic Analysis and the US Census Bureau indicates that the contribution of net exports to first-quarter GDP fell significantly, from -0.41 percentage points to -3.70 percentage points. Additionally, first-quarter personal consumption expenditures growth is now projected to decline from 2.3% to 1.3%.
Trade data shows a soft performance, with the trade deficit increasing from $122 billion to $153 billion, mainly due to rising imports. There are concerns surrounding consumption and residential investment, following weak reports from Home Depot and record-low pending home sales.
The sharp drop in the Atlanta Fed’s GDP tracker highlights how quickly sentiment is shifting. A swing from expected growth to contraction in such a short period suggests that prior optimism may have overstated underlying strength. This change in outlook aligns with recent official reports, confirming that trade and consumer spending trends are losing momentum.
Net exports have played a major role in this adjustment. A deeper quarterly drag from trade flows means that foreign demand is not offsetting domestic weaknesses. The latest data shows an increasing trade gap, driven by rising imports outpacing exports. This reflects both a stronger US dollar making American goods more expensive abroad and softening global demand. Taken together, this adds another layer of stress to growth projections.
Consumption, which is the largest driver of economic activity, is also at risk. The downward revision from 2.3% to 1.3% in personal spending suggests Americans are pulling back, whether due to rising costs or a more cautious approach to discretionary purchases. Given that household consumption typically provides stability, this shift raises concerns about whether weaker spending will persist.
Housing-related indicators add further weight to these worries. A poor showing from Home Depot, a retailer closely tied to home improvement and construction, hints at slowed activity in the sector. Meanwhile, pending home sales remain at their lowest levels on record, pointing to continued softness in residential investment. With borrowing costs still elevated, housing struggles are unlikely to be resolved overnight.
For those involved in trading derivatives, these trends demand focus. When GDP expectations fall so drastically in a short time, volatility becomes more likely. If similar data continues to come in weak, asset prices could react sharply, particularly in sectors most exposed to consumption and trade. Moves in interest rate expectations may also shift market assumptions, adding further price swings across asset classes.
Information from the next few weeks will determine whether the reassessment of growth is temporary or part of a broader weakness. Until there is clarity, rapid shifts in sentiment will keep markets sensitive to incoming reports.
