The US economy shrank for the first time in three years in the first quarter, according to the Bureau of Economic Analysis (BEA), amid a surge in imports as buyers raced to get ahead of President Trump’s tariffs.

Behind the 0.3% contraction in GDP were numbers economists called “extreme” and “weird.”

March-ing Toward a Cutoff

The biggest factor behind the slip in first-quarter GDP was Trump’s will-he-or-won’t-he, start-and-stop trade war, often announced in dramatic social media posts only to be paused for extended negotiations. Net exports, meaning the gulf between what America imports and exports, took almost 5 percentage points off of headline GDP, the biggest export drag since tracking began in 1947. In the simplest terms, that means businesses hastily moved to get ahead of new levies and bring goods into the US. Imports impact the GDP figure because the BEA subtracts their value to ensure only spending on domestic goods is measured in GDP.

The other “hard data” — the quantifiable things economists can point to, as opposed to sentiment-based “soft data” — remains sound. “Look into the details, and the GDP report really isn’t that bad,” the respected University of Michigan economist Justin Wolfers wrote in a social media post. For example, the US has added 456,000 jobs this year, more than expected. And the Bureau of Economic Analysis said on Wednesday that consumer spending — which accounts for more than two-thirds of the US economy — surged a better-than-expected 0.7% last month. But, as Wolfers also noted, the new data only pertains to the economy as of the end of March (“ancient history” as he dubbed it), meaning the latest tariff shocks aren’t reflected:

• Of particular importance, he flagged that a significant rise in investment — which contributed 3.6 percentage points to Q1 GDP growth — “appears to be almost all due to pre-tariff front-running.” Indeed, 2.2 percentage points of that investment gain was due to companies boosting their inventories to beat tariffs. Consumers, meanwhile, spent on big ticket items like cars, motivated by the same forces.
• “There’s not much reason to be confident that this quarter’s strength in investment will be repeated next quarter,” Wolfers added. “The big question remains: How did the economy respond to April’s tariff announcement? We don’t yet know.”

Harvard economist Jason Furman similarly noted the “very extreme” increase in imports and inventories as reason for caution. “There is no doubt the trade war was having a huge effect on the data and the reality in the first quarter,” he wrote. “Absent the big April policy change, I would have said the initial numbers here are solid.” Among the ones Furman flagged were “core GDP,” an indicator of consumer spending and private investment, which rose at a much rosier 3% annual rate than the negative 0.3% for real GDP.

Taking the Temperature: Trump asked Americans to “be patient” with his economic policies in a social media post, but consumer confidence has tumbled — one sign spending could stall — and economists increasingly see a downturn in the cards. Morgan Stanley, Goldman Sachs and JPMorgan Chase all put the odds of a recession this year at 40% or higher.

What’s Google without search? The world may soon find out.

At least, so says CEO Sundar Pichai. While testifying in Google’s search monopoly remedies trial on Wednesday, he likened the US Department of Justice’s proposal that the company share or license search data with rivals to a de facto divesture of its search engine. True or not, it would be the continuation of a global regulatory push against the Big Tech titan.

Sharing is Caring

To Google, user data is the all-important secret sauce that enables it to innovate and outperform rivals (Google also says that sharing the data presents privacy and security risks). But to antitrust regulators, the search data represents the ill-gotten fruits of the company’s illegal search monopoly, fruits that just so happen to make the monopoly even more powerful — i.e., nobody can compete with Google’s search engine without Google-levels of search data, and nobody can obtain Google-levels of search data because Google illegally boxed rivals out of the search market.

European Union regulators have already made the first move, requiring Google since last year to license search data with rivals under the Digital Markets Act. Still, Pichai insisted that the law’s requirements are “significantly narrower” than what the DOJ is now seeking in the US. But for the DOJ, that may be exactly the point:

• In a November blog post, privacy-focused search engine DuckDuckGo (which holds a less than 1% search market share, compared to Google’s more than 90% market share) accused Google of “malicious compliance” with European law by using a “conveniently overbroad” method of data anonymization that effectively omits “~99% of search queries” from its datasets.
• DOJ lawyers must have read the blog. In its proposed remedies framework for the case, the Justice Department calls for even more data-sharing than the Digital Markets Act, and specifically notes that “genuine privacy concerns must be distinguished from pretextual arguments to maintain market position or deny scale to rivals.” It also says that if Google claims some data cannot be shared due to privacy or security concerns, then Google itself should be prohibited from continuing to use such data.

Search and Destroy: The opening of the search data black box would be transformative. In fact, Pichai said it would effectively allow any rival to reverse-engineer Google’s search platform, and make any R&D with the product unviable for Google. And that’s just one remedy the DOJ is proposing. The agency also wants to end Google’s ability to strike exclusive deals making Google the default search engine on third-party browsers and devices. That, too, would mirror European policy, which apparently has already boosted smaller players in the bloc. Still, we won’t know for a while whether Google must submit to the full DOJ remedy menu. While the hearing will end next week, a final ruling probably won’t be revealed until August — at which point Google could pursue appeals. In other words: We’ll check in at the end of summer.

They’re making a list, and they want the SEC to check it twice.

On Wednesday, Ken Griffin’s Citadel Securities (the market-making firm, not to be confused with Griffin’s Citadel hedge fund, from which it was split off in the wake of the financial crisis) sent a list to the US Securities and Exchange Commission flagging what it sees as more than 30 different emerging risks facing the market.

Red Flags

There’s a new sheriff at the SEC. Out is Biden-picked Gary Gensler, frequent foe of Wall Street. And in, after being sworn in last week, is returning champion Paul Atkins, who previously chaired the agency from 2002 to 2008. Which means, according to Citadel’s letter to the agency seen by Bloomberg, that “now is the right time to comprehensively review the current regulatory framework and take decisive action to remove unnecessary costs and increase efficiency to unleash a new wave of innovation.”

Rest assured, Citadel Securities’ suggestions are comprehensive:

• Topping the list is a warning about the rise of 24-hour trading, just as the Nasdaq, New York Stock Exchange, and Cboe Global Markets all pursue SEC approval for round-the-clock operations. Citadel Securities, which claims to execute $570 billion in trades per day, says overnight trading requires more consistency across the industry and a clear regulatory framework.
• Citadel Securities also called for increased oversight of so-called Private Rooms, alternative trading systems in which only certain parties are allowed to execute transactions and whose operators “appear to be only providing minimal disclosures.”

Half Measures: And that’s not all. Citadel flagged all kinds of concerns about how Citadel credit, digital assets, and just about everything else gets regulated. It also pushed back against a new rule introduced last year that allowed thousands of stocks and ETFs to be priced by the half-penny. Instead, the half-penny implementation should first be tested over a two-year trial period, Citadel Securities wrote.