A high-stakes batch of economic reports due Wednesday is expected to show the economy already was wobbling, though inflation was easing, before President Donald Trump slapped high tariffs on U.S. trading partners in April. Gross domestic product for the first three months of the year is expected to reflect an annualized growth rate of just 0.4%, adjusted for seasonality and inflation. If accurate, it would be the worst showing for the nearly $30 trillion economy since the second quarter of 2022, when the U.S. narrowly escaped a recession. However, recent indicators show a real possibility that the number could be flat or negative, which would be a bad sign at a time when consumer sentiment is at multi-year lows and inflation expectations are at multi-decade highs. “The data dump is going to show the economy is struggling, and unless tariffs come off here pretty soon, we’ll be headed toward recession,” said Mark Zandi, chief economist at Moody’s Analytics. “The data is not all going to be singing the same song, but I think the song generally will be downbeat.” Though the Wall Street consensus is for the Q1 number to be positive, two developments Tuesday are casting doubt on whether that will be the case: a fresh record in the goods trading deficit for the U.S. as well as another report indicating major pessimism from consumers , who drive two-thirds of all activity. Goldman Sachs has lowered its GDP estimate to -0.8% while Jefferies now sees the level at -0.2%. With economists largely expecting tariffs to slow growth and raise inflation , a negative number Wednesday sharply raises the stakes for recession, usually defined as two consecutive quarters of negative growth. “If it looks like the economy is starting to buckle and the markets are taking it on the chin and that’s enough to convince policymakers to find an off ramp on the tariffs and wind down the trade war, we can avoid a recession,” Zandi said. “But that has to happen soon. If we don’t see that kind of response, then I think recession becomes very likely by June, July, August, somewhere in there.” Banking on lower inflation White House officials say the tariffs will strengthen the economy and bring in revenue that will narrow the gaping budget deficit. Trump also has touted continued progress on inflation since he took office, and Wednesday’s numbers should back that up. Economists expect the personal consumption expenditures price index, the Federal Reserve’s favorite inflation marker, to show no gain for March and just a 0.1% core increase when excluding food and falling energy prices. On a 12-month basis, that would put headline inflation at 2.2% and core, which the Fed puts more emphasis on, at 2.5%. Both would be 0.3 percentage point reductions from February levels. That gets the central bank closer to its 2% target and provides an easier path towards resuming interest rate cuts if not at next week’s meeting then perhaps in June. Citigroup expects the Fed to cut in June, though “the timing and magnitude of tariff pass through to consumer prices remains the key question of inflation data this year,” Citi economist Veronica Clark said in a note. “While some price increases could be evident as early as April, we expect larger increases in late summer/early fall.” Getting inflation down will be key to restoring consumer confidence, but the task will be taller if the White House doesn’t make progress on tariff negotiations . Consumer spending is expected to show a 0.5% acceleration in March, but much of that could be pulled forward because of shoppers trying to get in under the tariffs. A minus sign in front of GDP could push the negotiation process along, as Trump will not want to own a recession, particularly this soon into his second term. “I’m right around a coin flip of 50/50 [for a recession]. The consumer is really going to have to strengthen up here,” said Jose Torres, senior economist at Interactive Brokers. “If the hard numbers for consumer spending don’t begin to recover pretty significantly, pretty quickly, then the recession this year is going to occur.”
