How gold flows (and tariffs) distort the Atlanta Fed's recession model

As President Trump's tariffs roil markets and stir pessimism about a recession, the Atlanta Fed's nowcast of a US economy deteriorating in real time made the headlines.

It turned out that tariffs indeed drove this recession call - but not due to the real economy. Instead, it was a peculiar distortion due to physical gold being rapidly shipped to the US from abroad to avoid tariffs.

The Atlanta branch of the Federal Reserve runs a nowcasting model called GDPNow. It initially slashed the growth estimate for the current quarter (1Q 2025) from 2.3% to negative 1.5% - and then, one trading day later, cut the estimate even further to a contraction of 2.8%. What drove such a radical change in such a short time frame?

Like CEIC's own nowcasts, GDPNow delivers real-time growth estimates. It uses methodology similar to official government calculations, providing an early preview of economic performance before official figures are released.

(By contrast, CEIC nowcasts use a proprietary, machine learning-driven model tapping high-frequency and alternative indicators; we're predicting a slowdown in the current quarter, but not a contraction. The official GDP figure is due April 30.)

Our main chart breaks down the factors influencing GDPNow readings. These include the PCE measure of inflation, fixed investment, inventories, government spending, exports and - crucially, as it turns out - imports.

On Feb. 28, the Census Bureau's Advance Economic Indicators Report showed the US trade deficit surging 25.6% to a record USD 153.3 billion in January. (That was later revised to 27.4% and USD 155.6 billion.) Goods imports jumped 11.9% to an unprecedented USD 325.4 billion. (Again, this was revised upward, to 12.5% and USD 327.1 billion.)

As our chart shows, this was enough to push GDPNow down by 3.7 percentage points, i.e. from economic growth to contraction. Subsequent weak figures for the manufacturers' purchasing managers index (PMI) and construction, released March 3, pushed the forecast even lower - down to -2.8%.

Meanwhile across the Atlantic: from late January, the British press began publishing reports of a multi-week wait to withdraw gold bars from the Bank of England's vaults. The UK central bank soon confirmed this phenomenon; gold owners were flying their bullion to the US.

While many companies were front-loading planned imports of all kinds of goods to get ahead of Trump's tariffs, gold bars were a high-value commodity that was being moved very quickly.

The full international trade report on Mar. 6 revealed the more nuanced story. To illustrate it, our second chart looks at another trade relationship that is usually quite sleepy: the US and Switzerland - like the UK, also a center for international banks, gold vaults and a gold-refining sector.

Sure enough, the US trade deficit with Switzerland soared to USD 22 billion in January - about the size of its goods deficit with China. The US also tracks an import category called "finished metal shapes," which includes gold bars. As our chart shows, this category tends to move more or less in lockstep with overall imports from Switzerland. In December and January, both measures soared.

A timing mismatch exists in the GDPNow model, which uses trade figures as a proxy for export strength. It captures the "negative" impact of gold imports before it incorporates the corresponding inventory increases that will eventually offset this effect; look for its GDP estimate to snap higher once this buildup in inventory is reflected in upcoming data. (The Atlanta Fed also provides a gold-adjusted estimate. As of March 7, it was showing 1Q GDP growth of 0.4%—a slowdown, but not contraction.)

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