Larry Kudlow says the recession that swept Wall Street and the media refused to acknowledge the underlying misconceptions of the latest GDP numbers and the early impact of President Trump's economic agenda.
To him Fox Business Network Show WednesdayKudlow described what he described as “media and Wall Street obsessions” in the first quarter of 2025 as “media and Wall Street obsessions,” showing a 0.3% drop in actual GDP.
“The liberal press and Wall Street peers are talking about the recession as GDP scored a slight decline of 1 percent, three-thirds of a 1 percent,” Kudlow said. “Even so, looking under the hood of the GDP report, carefully analysing the numbers, what I actually came up with is a pretty strong economy growing at something like 3%.”
Kudlow pointed out what he called “Core GDP.” This is a measure to remove volatile components such as inventory, government spending, and net exports. Its narrow but stable measure, officially known as the true final sale of private domestic buyers, rose by around 3% per year in the first quarter.
“Trump hasn't started much, but let's take a look at Core GDP already, which takes fluid trade imports from the tariff front and looks at the heart of GDP, which is private sector consumption and private sector business investment,” Kudlow said. “Well, if you look at the core GDP, you see the actual growth in the first quarter of the economy.
He argued that the strength is hidden by a temporary surge in imports as businesses stock in anticipation of higher tariffs. Kudlow said this type of activity is not a sign of weakness, but a sign of confidence in future demand.
In Kudlow's view, the highlight of the report was a significant increase in business investments.
“Fixed business investments increased by nearly 10% at the first quarter annual rate,” he said. “And even better, business equipment and machinery, which are very important precursors of productivity, increased jobs and actual wage increases, have risen incredibly at 22.5 percent. There's no recession.”
Kudlow attributed this to President Trump's tax reform package to pass this summer. The administration has proposed a 100% cost for business investments, including factory equipment and buildings, retroactive to January 20th, and a lower corporate tax rate on domestic production.
“So what's really happening is that businesses are putting the big, beautiful tax cuts coming up at the forefront,” Kudlow said. “It's an incredible story. It's a re-release story.”
“With business workers' tips, overtime and new personal tax cuts for social security benefits for seniors, the business tax cuts far outweigh the drugs from tariffs.”
He also pointed out signs that inflation would be slower and slower. The Personal Consumption Expense (PCE) Price Index – the Federal Reserve Priority Gauge – was flat in March, and the Core PCE Index also went to zero. Meanwhile, the consumer price index fell 0.1%.
“All of this inflation progress sets down the Federal Reserve,” Kudlow said. “Yes, there should be a rate reduction.”
Finally, Kudlow brought attention to what he described as the statistical oddity of GDP calculations. Imports rose by $333 billion in the first quarter, while private inventory rose by just $140 billion.
“There's a gap. Where did these trade imports go?” he asked. “Has the roughly $200 billion gap between imports and inventory just evaporated? The Commerce Department's pencil thrusts are clearly not counted.”
Kudlow said that simply adding missing imports to GDP would eliminate contractions.
“And if you do that, the actual GDP growth for the first quarter of 2025 will be 3.2%,” he said. “Even better than private domestic sales.”
For Kudlow, the conclusion is clear. The US economy is not stagnant – it is spinning.
“It sets up an economy boosted by tax cuts and deregulation that could possibly roar in the second quarter, but through 2026,” he said.
