Import surge continued in March. Which drops GDP for Q1, and makes Q2 slowdown worse

Today we found out that March was yet another month with a massive amounts of imports to America, as businesses tried to beat the “Liberation Day” tariffs declared by Donald Trump on April 2.

The international trade deficit was $162.0 billion in March, up $14.1 billion from $147.8 billion in February. Exports of goods for March were $180.8 billion, $2.2 billion more than February exports. Imports of goods for March were $342.7 billion, $16.3 billion more than February imports.

That’s quite the Trump effect for the first 3 months of 2025, isn’t it?

That explosion in imports will show up in tomorrow’s first look at Q1 GDP, as imports subtract from total domestic product. Now to be fair, this decline gets recovered when a final product that results from those imports is made and/or sold in the US, plus whatever profit the businesses pull.

But for Q1, it’s likely to take away from the totals, and March’s continued surge of imports dropped more than 1% from the final projection of GDPNow from the Atlanta Fed, which came out this morning.

After this morning’s Advance Economic Indicators release from the US Census Bureau, the standard and alternative model nowcasts of the contribution of net exports to first-quarter real GDP growth declined from -4.90 percentage points and -2.85 percentage points, respectively, to -5.26 percentage points and -4.05 percentage points.

Woof. But on the flip side, take out that import surge as well as increases in government purchases and overall inventories (which add to GDP), and the underlying economy generally has held up in the first three months of the year. As UW-Madison professor Menzie Chinn notes in Econbrowser.

Lastly, I also wanted to mention this part of the Census Bureau’s release, which to me includes a warning about things going forward.

Wholesale inventories for March, adjusted for seasonal variations and trading day differences, but not for price changes, were estimated at an end-of-month level of $908.0 billion, up 0.5 percent (±0.2 percent) from February 2025, and were up 2.3 percent (±0.7 percent) from March 2024. The January 2025 to February 2025 percentage change was revised from the preliminary estimate of up 0.3 percent (±0.2 percent) to up 0.5 percent (±0.2 percent).

So that’s two straight months of 0.5% increases in the value of inventories for businesses. Combine this increase in inventory with the rush of imports, and I don’t see much of a need to have much more to order in the coming months, do you?

Which helps explain why we’ve been seeing reports like this in recent weeks.

What makes the drop in consumer confidence in 2025 so remarkable to me is that the really bad stuff of layoffs (from a lack of orders) and higher prices (from tariffs) has largely yet to happen. But Americans seem to recognize that it’s coming soon enough, and if consumers start to cut back on their spending because of those well-founded worries about the future of the economy, then the recessionary cycle that we are likely to enter in Q2 will continue and deepen over time.

The real sign from Supreme Court election - Wis Dems show up all the time now

Saw an interesting analysis about our state's elections recently. It came from Lakshya Jain and Armin Thomas at Split Ticket, who say Susan Crawford’s sizable win in the Supreme Court election 3 weeks ago wasn't all that surprising. And they say it comes down to one simple factor – Dems turn out in Wisconsin.

Our estimate is that the voters who voted in the 2025 Supreme Court election backed Kamala Harris by 7 points in 2024. In other words, roughly 70% of Susan Crawford’s win margin was attributable to changes in who was voting, rather than changes in how people voted. While the persuasion she got would still have been enough to flip the state with a November 2024 electorate (which was Trump +1), the landslide victory largely came down to a big turnout advantage.

Intuitively, this makes a lot of sense — the voters who show up in off-cycle elections tend to be far more educated and engaged, which also means they’re more partisan and thus significantly less prone to persuasion. This generally gives Democrats an inherent coalition boost in special elections, because their voters (especially in whiter areas) are more educated and thus more likely to turn out. On top of that, the party also enjoys an intra-demographic advantage, as high-engagement Democrats turn out at higher rates than high-engagement Republicans do in every demographic category, per The New York Times.

The net result was a massive edge for Democrats, even in a race that had record-setting turnout for an April election. All across Wisconsin, whether in big cities or the tiniest rural villages, Democrats mostly did a much better job of showing up than Republicans did.

And the authors say the biggest change in who was turning out in that Supreme Court election happened in Western Wisconsin’s Driftless Region, which slid hard towards Republicans in the November 2024 election.

And which Wisconsin Congressman ends up being the biggest loser with that change in electorate? The guy who was already a GOP underperformer.

For example, Derrick Van Orden’s WI-03 is high on Democratic target lists. Much of the Republican base in this seat does not vote when Donald Trump is not on the ballot — though it was R +8 in 2024, our estimates suggest that Kamala Harris comfortably won the electorate that actually showed up in April 2025. A bluer electorate relative to 2024 would put him in the electoral crosshairs, especially considering he only won by 2% against Rebecca Cooke, who is gunning for a rematch against him….

While we certainly don’t expect an 8-point gap between the partisanships of the 2024 and 2026 electorates, we wouldn’t be surprised by a 4-5 point gap (placing 2026’s electorate at Harris +2 or +3). It’s important to remember that the 2022 electorate was probably Harris +1 by 2024 vote — considering how the realignment in engagement has only accelerated since then, and given that Democrats are now more enthusiastic to vote because they are out of power, we’d expect 2026 to be worse in turnout for the GOP.

So if WI-3 is going to have an near-even electorate in 2026, how is Small-D VO going to stay in office in that scenario? Especially when he will continue to make an ass of himself by doing things like trying to impeach judges for demanding that DOGE dweebs follow the law?

Elon Musk may have rewarded Van Orden by giving him a max donation for the upcoming election cycle. But as we saw 3 weeks ago, when people hate you in this state, all the money you throw out there is a negative for the candidate you prop up, not a positive.

I also noted in the wake of Crawford's election that there seemed to be a disapperance and/or change in the voting habits of the college bros that helped lift Trump to victory by less than 1% in this state in November. That didn't just show in sizable shifts towards Dems in college counties around La Crosse, Eau Claire, Stevens Point and Oshkosh, but it was especially obvious in the parts of Madison that were on and next to the UW-Madison campus, where there was a massive drop in the votes for the GOP-backed candidate in April vs a small decline in votes for the Dem-supported candidate.

The way Trump has been tanking, the GOPs are probably in line to lose anyway in 2026. But if the better-educated and better-aware Dem voters in Wisconsin continue to have off-year turnout advantages, that won’t just put Derrick Van Orden out of Congress, but also increases the chances that some other WisGOP Congress-slug like Bryan Steil or Tony Wied gets the boot in November 2026. And it makes flipping the State Legislature a strong possibility.

Maybe these Congress GOPs should do something other than cowering in a corner and blindly supporting a President who the majority Wisconsin voters won't be in support of in November 2026. Just a thought.

More Trumpian losing, both on Wall Street and with the Fed

So after the DOW Jones lost nearly 1,400 points over the last 3 trading days of last week, how did stocks respond today after a long 3-day holiday weekend? With more losing.

And stocks weren't the only financial items that were in decline today.

Major U.S. stock indexes dropped and the dollar index slid to a three-year low on Monday as U.S. President Donald Trump's continued attacks on the Federal Reserve chair and the bank's monetary policy rattled investors.

Investors flocked to safe-haven assets including gold, which hit another record high, and the Swiss franc.

Trump has been complaining about Fed Chair Jerome Powell and Powell’s continued “wait and see” approach on any changes in interest rates, as the Chair says he wants to wait for data on inflation and the economy as a whole in the wake of Trump’s tariff announcements at the start of this month.

That’s not good enough for Trump, who wants to see interest rates go down because he and Elon Musk are strung out on debt . And investors are getting spooked as a result of the President's rantings.

[Trump's] comments about Powell fueled worries about the Fed's independence in setting a monetary policy path and about the outlook for U.S. assets. Most markets were closed on Friday and some, including most of Europe, remained on holiday for Easter Monday, leading to thinner-than-usual liquidity.

Powell is "a steady hand, he's a known entity, he's stability in a world of uncertainty. He brings that calmness to the market, something people can rely on that hasn't changed stability while all this chaos is going on," said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.

In other words, Mr. President...

Hilariously, the biggest barrier to interest rate cuts right now IS DONALD TRUMP. Putting tariffs on a widespread range of products are highly likely to raise prices for consumers no matter where the products come from. Dollar devaluation is also inflationary, even as it helps US exports due to more competitive prices overseas. But those exports now can’t get sold in other places because those other countries have been putting on retaliatory tariffs against US goods.

So if demand doesn’t fall off a cliff while prices are going up, there’s no reason for the Fed to cut rates further, because why would they want to encourage even more borrowing and more inflation? And with many US manufacturing businesses are already facing higher costs as the components and parts for their products cost more due to tariffs, that would likely counteract any help those firms might get on the interest rate front.

The only way an interest rate cut makes a lick of sense is if we get information that the economy is in free fall, with large amounts of layoffs and order cutbacks. While I can see a scenario why the recessionary free fall might happen soon, there’s no evidence of it happening today, as unemployment claims have remained low and there was a surge in new manufacturing orders and imports in Q1 to get ahead of the tariffs.

So I think the markets continued to tank today because there’s a sense from Wall Street traders about 2 things:

1. The Fed is stuck between trying to limit tariff-induced inflation, and trying to fend off a Q2 recession that is nearing inevitability. But also...

2. It feels like the wheels are completely off the Trump Train, between the Old Man's ranting against the Fed Chair and general idiocy on his tariff policy, to the drunken, careless, one-sideburn Fox News host that is in charge of the Department of Defense,, to the dimwitted Homeland Security Secretary that just had her purse stolen from a DC restaurant this weekend with $3,000 in cash and who-knows-what kinds of confidential information.

The Money Men are apparently realizing that having a GOPpuppet in charge to give away tax cuts and allow corruption isn’t as important as having people with a clue in charge. Especially if the person calling the shots is a senile rich kid that has only worked at Daddy's business, doesn’t know anything about how and why the real economy works or how and why real jobs grow and improve.

Evers veto won't raise property taxes....unless GOP Legislature wants it to

Susan Crawford has yet to take her seat at the Wisconsin Supreme Court, and there are cases from last year that the prior majority have to clean up. One of the big cases had their decision rendered yesterday.

And here's how we got to yesterday's decision.

The budget lawmakers sent to Evers in the previous two-year session called for a spending increase of $325 a year per student in both 2023-24 and 2024-25. Evers struck the “20” and a dash from the reference for “2024-25.” That changed the end date to “2425.”

Two taxpayers challenged the move with the backing of Wisconsin Manufacturers & Commerce, the state’s largest business group. Among other things, the suit argued Evers’ move was barred by a prohibition on guvs creating new words by striking out individual letters.

Do I think what Gov Evers did is kind of BS? Yes, and if you put this type of move to a constituional amendment, I'd consider voting for it, because of what it could lead to if the wrong governor was in charge (see Washington DC these days for more insight).

But it's a good outcome for Wisconsin, as it raises the revenue limits for public K-12 schools, allowing for more resources to go into the classroom. And that's badly needing after 15 years of Republicans choking off the schools with voucher theft and many years of $0 for revenue limit increases, even as inflation raised costs for those same schools.

Not surprisingly, Republicans really didn't like the idea of more taxpayer resources being able to be invested in Wisconsin's public schools.

Senate Majority Leader Devin LeMahieu, R-Oostburg, and Assembly Speaker Robin Vos, R-Rochester, focused their attention today on the court’s liberal majority. LeMahieu said the court ruled “based on partisanship and politics rather than the rule of law,” and fellow GOP lawmakers predicted the ruling would lead to massive property tax increases for the next 400 years....

“The Supreme Court’s partisan decision today should worry every Wisconsinite. The Governor can now raise property taxes – unchecked by any other branch of government – for hundreds of years,” [Vos] said.

Except it's not true that property taxes have to go up. And somebody should tell Robbin' that "other branches of government" can keep that from happening.

The per pupil cap Evers reworked applies to what schools can spend between state aid and property taxes. In addition to the option of changing the language Evers wrote through future legislation, the amount of state aid put into the formula will heavily influence property taxes.

In his 2025-27 budget, Evers proposed tying the per-pupil spending increase to inflation going forward. Under his proposal, the limit would go up $334 in 2025-26 and $345 in 2026-27. The $3.4 billion in additional state spending on K-12 education he proposed in the budget would largely eat up that increase.

RIGHT. The Legislature could agree with the Governor to increase state aids and/or property tax write-offs to make sure Wisconsinites don't pay more in property taxes toward K-12 schools. In addition, just because the revenue limit is going up by $325, it doesn't mean that local school boards have to sign off on an increase in their revenues by $325, and they can choose not to increase property taxes if they don't want to.

Bottom line is that if property taxes for K-12 schools go up because of the higher revenue limits that is the fault of the GOP Legislature. Both in failing to use enough of our $4 billion+ surplus to use state funds to cover the extra 2-3% per student that the $325 increase in revenue limits account for, and because they put K-12 community schools in position to need these extra funds to try to catch up to 15 years of insufficient funding.

But that would require the GOP Legislature to do something other than try to squander our surplus on the rich and give away our tax dollars to the donors in the school voucher industry. And I bet they won't change those tactics in this budget, even as voter anger rises against the GOP in general, and against the Republican hatred of education in particular.

Front-running tariffs likely will stave off recession for Q1. But makes it more likely in Q2?

I'd been looking to see if consumer spending was holding up through the beginnings of our stock market decline in March, and we got an indication with this morning's release of retail sales numbers.

Retail sales climbed 1.4% in March from the prior month, the Commerce Department said Wednesday, up from February’s 0.2% gain and the highest monthly gain since January 2023. The figures are adjusted for seasonal swings but not inflation.

The strong showing in March was largely driven by sales of cars and auto parts. Excluding those purchases, retail sales were up a more modest 0.5%.

The big driver of the increase was due to a jump in the automobile sector, as it seems that American consumers took the advice of a recent Madison-area car dealer ad that I saw, and tried to “beat the tariffs”. Sales of autos and auto parts were up 5.3% in March after a 1.6% drop in February and a 3.4% drop in January.

So the increase merely gets us back to the (seasonally-adjusted) heights in auto and parts sales that we had at the end of 2024, and it's at a higher level of activity compared to the slumping times of 2023.

I will add that even if you take out autos and the volatile amount of spending on gasoline, March was a solid month for retail sales after a slow start to 2025. So-called “core” retail sales went up by 0.8% in March, and lifted the quarterly average for Q1 2025 to +0.6% compared to Q4 2024. That’s beating the rate of inflation in most areas for the first 3 months of 2025, so we seem likely to see consumer spending be positive for Q1 GDP.

But that doesn’t mean we aren't seeing distortions due to the antics of Tariff Man and his enablers in DC. While it’s good to see vehicles get cleared off of lots in March, there were large numbers of auto components ordered and imported in the last 2 months to beat the extra duties, and if the tariff threat encouraged people to buy sooner than later, there might not be the demand to follow up for the vehicles that are coming out of the factory now.

Likewise, the S&P has fallen another 5% since the end of March after dropping 8% in the 6 weeks leading up to March 31. At some point, you have to think that and the collapse in consumer sentiment is going to lead to cutbacks in consumer spending. And while we’ve seen announcements of layoffs, we have yet to see that show up with higher unemployment claims or drops in income in other reports.

With that in mind, I’m going to guess we eke out a slight gain in GDP for Q1, or at least growth once you remove the massive amount of imports in January and February which came in to beat the tariffs (imports subtract from GDP, remember). The underlying economy seems to have held up in these first three months, even if people don’t like what’s going on.

But there isn’t much positive to carry over into April, and it’s pretty clear that we are more likely to see things get worse than get better. And as we know in non-COVID recessions, once things turn downward, it takes a while to pull out of the downturn, because the job losses and lack of need to invest in businesses start to build on each other.

In addition, I wouldn’t expect much help from the federal government, especially as long as the DOGE dweebs are stealing data and the Trump trash are pulling funds from anything that might be good for society. And then trade seems to be drying up, especially as China cuts off American exports of food and energy in large numbers.

So yes, the US economy survived through March, but it’s not a good outlook for Q2, is it?

Sunday reading on the Fools of April in the White House

Wanted to forward a couple of columns to you. The first is from economist Paul Krugman, who says that President Trump's erratic, seemingly random decisions on tariffs have made the large investors lose trust US assets at this point. And that it is indisputable that higher prices are coming due to the President's decisions.

In fact, savvy traders have realized that there’s no coherent economic strategy. There’s an old line about military analysis: “Amateurs talk about tactics, but professionals talk about logistics.” Well, when it comes to taking the pulse of financial markets, amateurs talk about stocks, but professionals talk about bond and currency markets. That’s because bond and currency markets are generally less driven by emotion. There’s no “meme gambling investing” in bond and currency markets. And these markets are both signaling major loss of faith in America.

First, about tariffs: It’s true that for the time being Trump has scaled back some of the tariffs displayed on his big piece of cardboard last week. For example, unless we have another policy swerve, the European Union will now face a 10 percent tariff over the next three months rather than a 20 percent tariff. But the tariff on China, our third-biggest trading partner after Canada and Mexico, has gone from 34 percent to more than 130 percent. And we still have high tariffs on steel, aluminum and so on. In effect, observers who claim that tariffs have gone down are missing the biggest part of the story.

Economists who have actually run the numbers, like those at the Yale Budget Lab, estimate that the April 9 tariff regime will raise consumer prices more than the April 2 regime because of the extraordinarily high tariff rate on Chinese imports. Specifically, the budget lab estimates that the latest version of Trump’s trade war will raise consumer prices by 2.9 percent. This is roughly ten times the probable impact of the infamous Smoot-Hawley tariff of 1930.

Krugman goes on to note that this loss of confidence is the real problem, and is making the pros to treat America as a Banana Republic.

For example, economic theory and history both say that the imposition of tariffs normally leads to a stronger currency unless other countries retaliate. During his confirmation hearing Scott Bessent, the incoming Treasury secretary, argued that a 10 percent tariff would lead to something like a 4 percent rise in the dollar. But not this time. Instead of going up, the dollar has plunged....

The common thread in currency and bond markets is that, thanks to Trump, dollar assets — traditionally the foundation of the global financial system — are no longer perceived as safe.

The combination of interest rates soaring amid a slump and the currency plunging despite rising interest rates isn’t what we normally expect for advanced countries, let alone the owner of the world’s leading reserve currency. It is, however, what we often see in emerging-market economies. That is, investors have started treating the United States like a third-world economy.

That's the nice way of saying "TRUMP IS A F'ING MORON." Drew Magary of Defector put up a screed that reiterates that point, and sums up what I think a lot of us want to say to Trump and the group of kiss-up grifters that surrounds him.

The whole thing is great, and here's how it ends.

None of you people were built for this. You’re all unqualified, overwhelmed, and dumber than a post. And you think that standing behind a mic and going Hurrr durrr every other country has a smaller dick than us because of these policies will make you Patton. Well, President Kidney Failure, telling everyone you’re the greatest leader who ever led doesn’t make it so. Quite the contrary. People voted for you because they were bored. Now you’re gonna bleed them dry, all while small-talking them to death. Don’t you ever get tired of talking? Don’t you run out of saliva? Is there a strategic gland reserve that you and your cronies are skimming from to keep your maws properly lubricated? You pieces of shit are wasting words, and that offends me as a professional wordsmith. I choose my words carefully before writing them down, because that’s what people are supposed to do. They are not meant to be sentient word clouds, crying "FREEDOM!" the second a process server knocks on their door.

But that’s what you morons do, because spouting off is the only thing you know how to do. You’re destroying the English language, a feat that not even Ryan Murphy himself could manage despite his tireless efforts. So, before you’ve successfully rendered both America and basic human communication extinct, allow me to talk for just one moment. I only need eight words, and here they are:

Everyone, everywhere, would be better off without you.

This is what you get when you have a President who tells his aides to "treat each day as a TV episode", with no connection between past events and current developments. And where the "results" have little to do with economic outcomes, and more to do with what gets headlines and keeps the rubes stirred up so they don't ask questions.

But why is it the writers that have to tell this truth? Where are the Dems nationwide saying the simple fact that "THESE IDIOTS DON'T HAVE A CLUE". You really don't need to go further than that, because a strong majority of Americans already agree.

Americans aren't buying into the Trump economy. And that's before things actually get bad!

We knew that this was a key week of data that would tell us if Tariff Man's policies were having an impact on prices and jobs, with the release of the Consumer Price Index and the Producer Price Index reports for March. First came the CPI on Thursday.

Wow. Prices actually fell in March?

Kind of, as if you dig into the actual CPI report, you'll see that actual prices rose by 0.2% last month, but since it's expected that prices jump in March especially for gasoline as well as some other products, that translated into the seasonally-adjusted decline for the CPI report. And gasoline was a big reason why, as it fell 0.9% at the pump and by 6.3% on a seasonally adjusted basis.

The one item of concern was that food at home. This is also known as groceries, or as our Dear Leader calls it "a bag with different things in it", and unlike when he claimed last week, food at home went up by 0.5% in March, with eggs jumping by another 5.9% after increases of 15.2% and 10.4% in Trump's first 2 months in office. That pushed the 12-month price increase for groceries to 2.4%, which is the highest it's been since September 2023, and the 4.7% year-over-year increase in meats is the highest in 2 1/2 years.

But still, the overall CPI picture was good, and showed no sign of tariffs raising prices. What about wholesalers and other businesses? That followed with the Producer Price Index report on Friday, and it turned out that those prices dropped as well, down by 0.4% for final demand after rising 1.1% in January and 0.4% in February.

Not only was the drop in oil and gasoline prices a contributor to the drop in the PPI as well as the CPI, but food prices also went down for businesses in March, dropping by 2.1% after rising by a total of more than 5% in the 4 months prior to that.

So that should stabilize domestic food prices, although it's still up in the air as to what happens with higher taxes on imported foods and the profit-taking that domestic food businesses may take as a result of that.

But that good inflation news for March was overshadowed by what consumers thought of the turmoil Trump and the DOGE dweebs were causing, and what was going to happen from April going forward.

I'll remind you that "the low point of the Biden Presidency" was when year-over-year inflation was running at 9.1% and economic "experts" were saying a US recession was certain to happen in the next year (a recession that never came, by the way).

The consumer sentiment numbers underscore the real problem with the US economy, even before we officially have fallen into recession. No one with a drop of honesty is buying what TrumpWorld is trying to sell, and the White House and GOP Congress is filled with so many underqualified lackeys that won't do anything to correct the Senile King in Chief that is randomly throwing tariffs and regressive tax policies around without a hint of strategy or a clue (or a care) about how it affects everyday people.

We'll find out next week if the tanking in consumer confidence translates and expectation of higher prices tanks the retail sales numbers for March, and guarantees a bad number for Q1 consumption. If people are clamping down because of Trumpian stupidity, then it becomes a double-whammy once the higher prices from tariffs inevitably hit in the coming months. And then the recession will likely be on for real.