The sharp drop in the fiscal impulse represents a direct, dollar-for-dollar hit to nominal GDP that has already occurred. This indicates a recession is underway, not forthcoming. The National Bureau of Economic Analysis (NBER) will likely backdate the start of this recession to the third quarter of 2025.

The outlook for 2026 is significantly more optimistic than 2025, primarily due to fiscal policy. Deficit-financed tax cuts are expected to add nearly half a percentage point to GDP growth. This stimulus, not AI, is seen as the main force lifting the economy from below-potential to at-potential growth.

Gross Domestic Income (GDI), an alternative measure of economic output, grew at a mere 0.9% in Q1, significantly below the 1.6% GDP figure. An average of GDP and GDI, often considered a more accurate representation of the economy, points to a sluggish 1.3% growth rate, signaling deeper weakness.

A downward revision slashed Q4 2025 GDP growth from an initial 1.4% to just 0.7%, revealing a much weaker end to the year. A significant factor was the government shutdown, which alone subtracted a full percentage point from growth, highlighting the direct economic cost of political gridlock.

The common description of the 2025 economy as "resilient" is challenged. An economy growing below its potential, leading to rising unemployment and no net job growth, is better described as "fragile." This state is unsustainable and risks devolving into a recession if conditions do not improve.

Real consumer spending is up only 1% year-to-date (non-annualized), which annualizes to a weak 1.5%. This is a significant slowdown from the typical 2-2.5% growth in previous years, indicating that consumers are substantially pulling back their expenditures.

The 'One Big Ugly Bill' has already passed and its main effects will be felt in 2026-2027, creating a 1-2 percentage point positive fiscal impulse to GDP in each year. This pre-programmed stimulus, combined with runaway mandatory spending, suggests US growth could hit 3-4%, far above consensus expectations.

While headline GDP figures seem positive, the US economy shows signs of weakness. Growth is driven by high-income households drawing down savings, while the job market is stagnant outside of the healthcare sector. This creates a "K-shaped" dynamic where macro numbers obscure underlying fragility.

Goldman Sachs projects 2.5% US growth, significantly above the market consensus of under 2%. This optimistic, contrarian view is based on factors the market may be underappreciating: the removal of tariff drags, ongoing fiscal support from tax cuts, and the delayed effects of easier financial conditions.