Is the Economy… OK?

Summary

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

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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."

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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.

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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.

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Additional reporting in this episode by Justin Lehart.

Transcript

[Anchor]

We're going to start with some breaking news. New data coming out just as we come on the air shows that the US economy shrank for the first time in three years.

[Advertiser]

GDP down 0.3%.

[Economist 1]

Contraction. We haven't seen that since 2022.

[Host]

Last week, a lot of economic data came out and the headlines seem to highlight a bunch of declining numbers.

[Economist 1]

The fact that we have a decrease in growth, that is never good. How people feel about the future of the economy, economy and their finances. Lowest level since 2011. Wall street is now looking at this and thinking, are we heading for that recession? That many economists.

[Host]

But our colleague Gene Whalen, who covers the economy, sees those numbers a little differently.

[Gene Whalen]

Despite all of these shocks happening to the economy, with tariffs, with doge and the government cuts, the underlying economy has remained fairly strong.

[Host]

And if you had to summarize what's happening with the US Economy right now in one word, what would that word be?

[Gene Whalen]

I have two words.

[Host]

Two words. Is good.

[Gene Whalen]

Holding steady.

[Host]

Holding steady. Why? Why is that?

[Gene Whalen]

There were a couple of data reports last week that showed that the economy is holding in and is is more stable than many thought.

[Host]

Welcome to the Journal, our show about money, business and power. I'm Jessica Mendoza. It's Tuesday, May 6th. Coming up on the show, what exactly is going on with the US Economy?

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[Host]

Economists use a lot of data points to give a snapshot of the economy. Three of the biggies are the gdp, the jobs report and inflation. We asked Jean to break down the numbers for us.

[Gene Whalen]

So the gdp, that means gross Domestic product. And what that is simply is that's the value of everything that we produce in the United States. The value of all goods that we produce, like apples and sneakers and furniture. And it's the value of all services that we produce here. Haircuts, manicures, legal advice.

[Host]

GDP also includes things like consumer spending and exports. At its most basic level, the GDP reflects the health of the economy. So let's talk about that GDP report. We got the latest GDP report last week. What did this say about the economy.

[Gene Whalen]

So the GDP report actually, on its face, looked not great. It showed that the economy shrank by 0.3% in the first quarter. Actually, though, the shrinkage was a little bit of an accounting trick.

[Host]

Gene says that to understand that shrinkage, we need to look at how the GDP is calculated when it comes to imports.

[Gene Whalen]

What GDP is, it's the value of everything we produce in the country, goods and services. It's apples and sneakers and haircuts and manicures. So we look at how much consumers spend, we look at how much businesses spend, and we look at how much the government spends on goods and services. And then we also add into that total everything that foreigners spend on stuff that we export, and then we get that big number. And from that big number, we subtract all of the stuff that we import into the country. And so that's how we calculate the value of everything that the US Is producing each quarter. So when imports really surge, when they go up a lot, we're subtracting a lot, a big number, from that total number. And we, this past quarter, imported way more than we normally would because of this fear about tariffs. So after Trump won the election last fall, a lot of companies started immediately bringing in a lot more goods because he had talked during the campaign about tariffs. He was going to start using more tariffs.

[Host]

Right. That was a big story for a while. People just like stockpiling stuff as much as they could.

[Gene Whalen]

Exactly. We had a huge surge in imports because a lot of businesses were trying to import a lot of stuff before the tariffs hit.

[Host]

And so does that mean that the data kind of looks worse than it actually is?

[Gene Whalen]

I think that that is how economists would interpret this past quarter.

[Host]

In other words, if you take away the bump in panic buying imports, the GDP right now would likely look different. So it sounds like the GDP in this moment is heavily reflecting imports, which has to do with tariffs. How much of what we're seeing now is because of Trump's policies?

[Gene Whalen]

So some of what we're seeing right now reflects Trump's actions, and some of it doesn't. So the GDP report, for example, covers January, February, March. Trump took office at the end of January. So part of the GDP report was during Biden's term, obviously. And it takes time for a president's actions to make a mark on the economy. And, of course, some of those tariff actions will take a little while longer to appear in prices and in what's on our store shelves. So we're not really seeing that yet.

[Host]

So would it be fair to Call it a transition economy, like a Biden Trump transition economy at the moment.

[Gene Whalen]

I think that's right. Yeah, sure. I mean, you know, if we're going to say this is Trump's GDP report, we'd want to look at a quarter when he was in office for all three months. Right. But yes, I think it's fair to look at this as a transition period.

[Host]

President Trump has said that any economic slowdown is worth the sacrifice, that it would be short term pain for long term gain. The two other key metrics that everyone is looking for at this time period are, are inflation and jobs. The most up to date inflation data comes out next week, but we do know what's going on with unemployment.

[Gene Whalen]

There had been a lot of bracing for a bad job report this time around because I think economists thought, well, we've had several weeks, more than a month of some of these tariffs now, and some businesses might be really cutting back a lot on hiring. But in fact, we saw that there were more jobs added last month than many economists thought. And overall, 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, partly because we've had this labor shortage because they're worried about being able to find people again if they need them in the future. And so the overall picture looks actually still pretty good.

[Host]

Right. It's almost more of a wait and see kind of situation before they commit to any particular direction when it comes to employees.

[Gene Whalen]

I think that's right.

[Host]

That is really interesting because I'm based in D.C. and have friends who are in this bucket. You know, the narrative is definitely people are losing their jobs, but it sounds like bigger picture across the country that that's not necessarily the case.

[Gene Whalen]

And I think you're right. There has been a lot of focus on the government layoffs, which have indeed been very stark for D.C. and other communities. But they haven't been big enough yet to create a real dent in the national labor picture.

[Host]

According to the Department of Labor, job growth was in health care and finance. Another category that was way up was transportation and warehousing, which economists think was about managing the surge in imports. So the economy is doing better than it might seem. So why are people so worried that's coming up.

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[Host]

While Jean says the economic picture isn't so bad, there are a lot of bad vibes out there, including one especially scary word, recession.

[Gene Whalen]

The risk of a recession is rising.

[Advertiser]

Recession.

[Anchor]

JP Morgan upping its recession so could this GDP contraction be the start of a US Recession?

[Economist 1]

What does this mean for a recession?

[Host]

We may already be in a recession. In early April, a survey by the Wall Street Journal showed that economists thought there was a 45% chance of recession in the coming year. And other surveys have shown that consumer sentiment has started to sour.

[Gene Whalen]

There are a lot of surveys that are coming out now, so different groups survey US Consumers and businesses, and those surveys have really been looking more negative over recent months. Businesses and consumers have grown a lot more worried, and some are saying we're not planning to spend as much this year. Businesses have said that we're maybe going to cut back on some of our capital spending and that could slow down the economy for sure if businesses and consumers are spending less.

[Host]

But that has not yet quite translated into the numbers at this point, is what you're saying.

[Gene Whalen]

That's right. The uncertainty of it all is the main problem. The businesses that I speak with say everything is on hold right now, and there are some exceptions to this which I can get into. But a lot of businesses are saying, look, we don't know what's going to happen tomorrow. We don't know whether we're going to be paying 145% tariffs on things from China or 50% or 5,000%. We don't know. And so we're not going to build that new factory right now. We're not going to hire a ton of new people right now because things are so chaotic and it's very hard to plan when you don't know what's going to be tweeted about tomorrow.

[Host]

So what would need to happen for the economy to continue to hold steady or avoid a recession? Like, would more certainty help?

[Gene Whalen]

More certainty is always better, Absolutely. For the economy. The more certain everyone is that things are going well, the more likely they are to spend and to keep the economy growing. What would it take to get more certainty? I think if President Trump really rolled back his tariffs and said, okay, we've reached trade deals with all of these countries and we're lifting these emergency tariffs and we're not making any more changes, that would create certainty. It would also create certainty for him to say, and really mean, look, I'm not rolling back these tariffs. The 145% on China is here to stay. All of these other tariff levels, the 10% universal tariff I put on goods from all countries is here to stay. We're not making any changes that would create more certainty for companies where they could at least start planning with some knowledge that, okay, now this is the new reality. We've got a plan for this. I'm not saying that that would make the economy keep growing strongly. I think if we have 145% tariffs on China for good, that would be really rough for our economy for a long time. But at least it would create some certainty that would allow companies to start.

[Host]

Making adjustments, adjustments that they know that they can stick to for a period of exactly. As businesses worked through all that uncertainty, tariffs against China went into effect and cargo shipments from China have started to fall.

[Gene Whalen]

This is a transition economy. Transitioning to what? We don't really know yet. There are tons of fears that we're heading to a worse place. And there is some. There's some hard data to show that those fears are warranted. And the biggest piece of hard data, I would say, is this huge decline in shipping traffic from China. I think that is the data point that everyone is focused on right now. What will the lack of those ships do to our store shelves and to prices? But at the moment, we're still a little bit in this holding pattern where the collapse of the arrival of the ships hasn't quite happened yet, and the economy still looks pretty good. So we're in a holding pattern.

[Host]

What does all this say about the state of the US Economy?

[Gene Whalen]

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, and it's wise to kind of reserve judgment, I think, over the next several months until we see more data and not to just assume that the sky is falling. If it is falling, we'll see it. And we'll see it in the next three, four, five months.

[Host]

That's all for today. Tuesday, May 6th. The Journal is a co production of Spotify and the Wall Street Journal. Additional reporting in this episode by Justin lehart. Thanks for listening. See you tomorrow.