The Journal: Is the Economy… OK?
The Wall Street Journal & Gimlet
Release Date: May 6, 2025

Introduction

In the May 6th episode of The Journal, hosts Ryan Knutson and Jessica Mendoza delve into the current state of the U.S. economy amidst a backdrop of mixed economic indicators and political shifts. The episode titled "Is the Economy… OK?" examines recent GDP reports, the labor market, inflation concerns, and the potential impacts of presidential policies on economic stability.

GDP and Economic Contraction

The episode opens with breaking news about the U.S. economy shrinking by 0.3% for the first time in three years ([00:05] – [00:15]). This contraction, as Economist 1 notes, is the first since 2022 and raises immediate concerns about a possible recession:

Economist 1 ([00:15]): "Contraction. We haven't seen that since 2022."

Host Jessica Mendoza acknowledges the headlines pointing to declining numbers but introduces a nuanced perspective through their colleague, Gene Whalen.

Gene Whalen ([00:52]): "Despite all of these shocks happening to the economy, with tariffs, with doge and the government cuts, the underlying economy has remained fairly strong."

Mendoza highlights the dichotomy between surface-level data and underlying economic resilience, prompting a deeper analysis of GDP and its components.

Understanding GDP: Components and Implications

Gene Whalen breaks down GDP, emphasizing its role as a comprehensive indicator of economic health by encompassing the value of all goods and services produced domestically ([02:45] – [03:08]). He explains that GDP includes consumer spending, business investments, government expenditures, and net exports (exports minus imports).

However, the recent GDP decline is partly attributed to a surge in imports caused by tariffs ([03:26] – [05:30]). Specifically, businesses increased imports in anticipation of tariffs imposed by the Trump administration, leading to an inflated import figure that artificially depresses GDP:

Gene Whalen ([05:09]): "We had a huge surge in imports because a lot of businesses were trying to import a lot of stuff before the tariffs hit."

This surge suggests that the GDP contraction may not fully reflect the underlying economic conditions but rather the distortions introduced by policy-induced import behaviors.

Impact of Tariffs and Transition Economy

The discussion shifts to the role of tariffs in shaping the current economic landscape. Gene Whalen characterizes the economy as being in a "transition period," influenced by both Biden and Trump administrations ([06:38] – [06:50]). The tariffs, especially those imposed on China, have introduced significant uncertainty for businesses:

Gene Whalen ([12:18]): "More certainty is always better, Absolutely. For the economy."

He argues that persistent tariff policies without clear rollback plans contribute to economic uncertainty, making it challenging for businesses to plan and invest effectively. The unpredictability of tariff rates hampers long-term economic stability and growth.

Labor Market and Unemployment Trends

Contrary to fears of widespread job losses, recent data indicates resilience in the labor market. Despite anticipated negative impacts of tariffs, job growth has exceeded economists' expectations, particularly in sectors like healthcare, finance, transportation, and warehousing ([07:11] – [08:25]).

Gene Whalen ([07:11]): "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..."

Mendoza points out that while specific regions like Washington D.C. have experienced noticeable government layoffs, the national labor market remains robust. This discrepancy underscores the importance of looking beyond localized data to understand the broader economic picture.

Recession Risks and Consumer Sentiment

The conversation shifts to the looming threat of a recession, heightened by mixed economic signals and deteriorating consumer confidence. Surveys indicate that economists predict a 45% chance of a recession in the coming year, and consumer sentiment has been declining ([10:14] – [11:27]).

Gene Whalen ([10:25]): "The risk of a recession is rising."

However, this sentiment has yet to materialize fully in economic numbers. Businesses and consumers are hesitant to commit to spending and investments amid uncertainty, which could, in turn, slow economic growth if the cautious approach continues.

Economic Uncertainty and Future Outlook

Gene Whalen emphasizes the critical role of economic certainty in maintaining growth:

Gene Whalen ([12:09]): "What would it take for the economy to continue to hold steady or avoid a recession? Like, would more certainty help?"

He suggests that decisive policy actions, such as clarifying tariff stances and establishing stable trade agreements, could alleviate uncertainty. Without such measures, businesses may continue to adopt a "wait and see" approach, hindering proactive economic planning and investment.

Shipping Traffic and Trade Concerns

A significant concern highlighted is the decline in shipping traffic from China, a direct consequence of tariff policies:

Gene Whalen ([13:47]): "What will the lack of those ships do to our store shelves and to prices?"

This reduction in imports could lead to shortages and increased prices, impacting consumer spending and overall economic health. However, as of the episode's recording, the full effects of diminished shipping traffic have not yet been realized, leaving the economy in a precarious "holding pattern."

Conclusion: Resilience Amid Uncertainty

Concluding the episode, Gene Whalen asserts that despite various economic shocks and policy-induced challenges, the U.S. economy demonstrates notable resilience:

Gene Whalen ([14:37]): "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..."

He advises a cautious approach, urging listeners to reserve judgment until more comprehensive data emerges in the coming months. The economy's ability to maintain stability amidst turmoil suggests underlying strength, but persistent uncertainty could alter this trajectory.

Final Thoughts

The May 6th episode of The Journal paints a complex picture of the U.S. economy. While headline indicators like GDP contraction and rising recession fears signal potential trouble, deeper analysis reveals resilience and stability in key areas such as the labor market. The interplay of tariff policies and economic uncertainty remains a pivotal factor influencing future economic outcomes. As the nation navigates this transition period, the balance between policy decisions and economic confidence will be crucial in determining whether the economy continues to hold steady or veers into recession.

Additional reporting in this episode by Justin Lehart.