An Inside Look at the Q1 2025 GDP Third Estimate
Real gross domestic product (GDP) decreased at an annual rate of 0.5 percent in the first quarter of 2025 (January, February, and March), according to the third estimate released by the U.S. Bureau of Economic Analysis. In the fourth quarter of 2024, real GDP increased 2.4 percent. The decrease in real GDP in the first quarter primarily reflected an increase in imports, which are a subtraction in the calculation of GDP, and a decrease in government spending. These movements were partly offset by increases in investment and consumer spending. (Link) (…)
I inserted the rectangles on this chart to highlight the bump in the importance of consumer spending on the overall US economy since the pandemic. Really significant. What gave? Mostly net exports which were –2.7% of GDP in 2019 and versus –4.2% in Q1’2025…
Durable Goods Orders Surge 16.4% in May
New orders for manufactured durable goods rose to $343.59B in May, its highest level in history. This represents a 16.4% increase from the previous month, the largest monthly jump since 2014, and a 19.8% rise from one year ago, the largest annual change since 2021. The latest reading was nearly double than the projected 8.6% monthly increase. (…)
If we exclude transportation, “core” durable goods were up 0.5%, higher than the expected 0.1% increase. Core durable goods are up 2.3% from one year ago. The next chart shows the year-over-year percent change in core durable goods. (…)
Core capital goods new orders are manufacturers’ new orders for non-defense capital goods excluding aircraft and is an important gauge of business spending, often referred to as “core capex.” Core capex is company spending that is used to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, and equipment. This month, core capex was down 1.7% month-over-month and up 3.9% year-over-year.
America’s deep housing hole
Pending home sales — deals that are in contract but not yet closed — rose 1.8% in May over last month but are still at record lows, per data from the National Association of Realtors released Thursday. (…)
“The bottom in home sales appears to be over with the possibility of a strong upswing once mortgage rates decline,” NAR chief economist Lawrence Yun said in a statement — though he cautioned that the market is seeing higher-than-normal cancellation rates and last-minute cold feet. (…)
As home builders contend with a freezing sales market, ICE is making things even more chilly. In a recent survey of home builders, conducted by Zonda, some companies reported that the immigration enforcement agency is starting to visit job sites.
- Visits from ICE have impacted workforce participation, they said. Any time there’s an ICE visit, builders tend to see more “no-shows” as workers — even those who are here lawfully — worry about getting caught in the net of the federal government.
- The industry didn’t comprehend how many negative hits housing would face from White House policies this year, says Ali Wolf, chief economist at Zonda.
Data: National Association of Realtors. Chart: Axios Visuals
China Confirms US Trade Framework, Vows to Review Exports
China said it has further confirmed details of a trade framework with Washington, echoing US Commerce Secretary Howard Lutnick’s earlier comments about a US-China agreement that stabilized ties. (…)
“The Chinese side will review and approve eligible applications for export of controlled items in accordance with the law. The US side will correspondingly cancel a series of restrictive measures taken against China.” (…)
Speaking to Bloomberg TV on Thursday, Lutnick added that the White House has imminent plans to reach agreements with a set of 10 major trading partners. (…)
Referencing a June 5 call between Trump and Chinese President Xi Jinping, the ministry said in the Friday statement the two countries should work together to promote the stable development of economic and trade ties.
China earlier this month said it would tighten controls over two chemicals that can be used to make fentanyl, in an apparent olive branch to the US that may help maintain their fragile trade truce. (…)
In the Thursday interview, Lutnick said US “countermeasures” imposed ahead of the London talks would be lifted — but only once rare earth materials start flowing from China. Those US measures include export curbs on materials, such as ethane that’s used to make plastic, chip software and jet engines.
The agreement comes as the US moves to ease restrictions on exports of ethane, with the Commerce Department earlier this week telling energy companies they could load that petroleum gas on to tankers and ship it to China — but not unload it there without authorization.
The European Union is prepared for all eventualities in its trade negotiations with the US, including for a breakdown in talks, Ursula von der Leyen said, after discussing the latest proposals from the Trump White House with the bloc’s leaders.
The European Commission president said at a press conference in the early hours of Friday that her team is still assessing the latest US tariff offer. (…)
The question dogging the leaders and the commission, which handles trade matters for the EU, is whether to accept an asymmetrical trade deal with the US or to strike back, risking escalation and the ire of the US president. (…)
The EU needs to reach an agreement with Trump by July 9, when levies on nearly all of the bloc’s exports to the US increase to 50%. (…)
“We have less than two weeks,” [German Chancellor Friedrich Merz] said. “You can’t agree a sophisticated trade agreement in that time.” (…)
French President Emmanuel Macron told reporters after the summit that a quick deal is preferable — but only so long as it is “balanced.”
“The best tariff deal with the US would be zero to zero,” Macron said, insisting that if the US decides to keep 10% tariffs, the bloc would have to respond. “Otherwise we would be naive, or weak, or both,” he said. “And we are neither.” (…)
The US is asking the EU to make what the bloc’s officials see as unbalanced and unilateral concessions, Bloomberg reported earlier. Discussions on critical sectors — such as steel and aluminum, automobiles, pharmaceuticals, semiconductors and civilian aircraft — have been particularly difficult. (…)
Chinese Foreign Minister Wang Yi is set to visit Europe next week, a trip that comes as Beijing tries to counter US tariff pressure by improving ties with other trading partners. (…)
Guo didn’t directly mention the US, but said “unilateralism, protectionism and bullying are rampant,” making it important for China and Europe to “maintain multilateralism and free trade.” He added that Wang would “make political preparations” during the trip for the next exchanges between China and the European Union, without elaborating.
A summit between the EU and China is expected to take place in the latter half of July. (…)
European Allies Wary of Buying American as They Plan Defense Buildup
For European countries that just approved the biggest increase in military spending in decades, “Buy American” is looking a lot less appealing than it once was. They may have no choice.
As the allies rush to rebuild their fighting forces, leaders are confronting the reality that they’ll have to rely on the US for many of the new weapons they’re planning to buy, a sales pitch driven home by President Donald Trump on his visit to Europe this week.
They fret that they may be put at greater risk if they deepen their dependence on a US whose president has embraced their main enemy – Russia – and rattled some with threats to annex their territory. Those deeper ties have become an increasingly hard sell at home, with electorates cautious about a closer embrace with the US.
Allied leaders like French President Emmanuel Macron have pushed for relying on European companies to provide the weapons and the EU fast-tracked a €150 billion facility for just that purpose after Trump was elected. Canada is considering pulling out of the US-led F-35 fighter program and buying Swedish planes instead.
“We should no longer send three-quarters of our defense capital spending to America,” Canadian Prime Minister Mark Carney said earlier this month. (…)
Trump’s abrupt decision to briefly suspend intelligence sharing with Ukraine earlier this year alarmed allies, according to officials, fueling fears that the US might hobble American-made weapons in a crisis. The worries got so bad that the Pentagon had to issue a public reassurance that the F-35 fighter didn’t have a “kill switch.”
But the planned buildup – worth as much as €14 trillion ($16 trillion) over the next decade if related infrastructure is included, according to Carlyle – is far beyond the current capabilities of a fragmented European defense sector that’s been hollowed out by decades of cuts since the end of the Cold War. And the US lead in key areas, especially missiles and other high-tech weapons, means there’s often no real alternative to buying American. (…)
German Chancellor Friedrich Merz, whose government is planning to nearly double spending on core defense items this year, said the European industry needs an overhaul to meet the demand.
“We have far too many systems in Europe, we have far too few units, and what we produce is often far too complicated, and therefore too expensive as a result,” he said this week.
At the Paris Air Show last week, executives from Airbus SE and Dassault Aviation SA sparred openly over who should take charge of their next-generation fighter jet project. (…)
Allies also lack key technologies.
Europe has no rivals as advanced as Lockheed Martin Corp’s F-35 fighter or RTX Corp’s Patriot anti-missile, which has been critical to protecting Ukraine from Russian attacks. Allies have no competitors for key capabilities like ballistic-missile defense and air-to-air refueling. While simpler weapons like howitzers are easier for allies to produce, they still require US satellite systems for precision targeting. (…)
US defense contractors are lining up cooperation deals with European counterparts to hedge against any shift away from American weapons. (…)
But the EU has Ukraine (necessity obliged):
Ukraine is rapidly becoming an important producer of military equipment, driven by necessity, innovation, and significant investment since the start of the full-scale Russian invasion in 2022.
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Ukraine’s arms industry has grown dramatically, with output capacity reaching over $35 billion by 2025—a 35-fold increase from 2022.
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The country is expected to produce 2.5 million drones in 2025, and its drone industry alone expanded more than tenfold in 2024, making Ukraine a global leader in both quantity and battlefield innovation.
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Artillery production has tripled, armored vehicle output increased fivefold, and anti-tank weapon production doubled between 2023 and 2024.
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Ukraine now produces more howitzers per month than all of Europe combined, with monthly output rising from 20 to around 40 units—on par with Russia and far surpassing France or Germany.
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The war has turned Ukraine into a “Wild West” for arms innovation, where new weapons are rapidly developed, tested, and refined under real combat conditions.
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Ukrainian manufacturers have produced new cruise and ballistic missiles, advanced drones (including maritime drones), automated turrets, and remote-controlled weapon stations.
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The government’s Brave1 initiative has fostered over 1,500 military technology start-ups, accelerating the development of new battlefield technologies.
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Ukraine’s defense sector is attracting growing interest from Western defense firms, with joint ventures and local production facilities established by companies such as Rheinmetall (Germany), Baykar (Turkey), and Česká zbrojovka (Czech Republic)476.
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The country is integrating more deeply with the European and NATO defense industries, with co-production agreements and technology transfers aimed at standardizing Ukrainian arms to NATO requirements.
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President Zelensky and government officials have set ambitious targets for 2025, including $30 billion in production and the manufacture of at least 30,000 long-range drones and 3,000 cruise missiles.
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The defense industry accounted for 1.5% of Ukraine’s 4.9% GDP growth in 2023 and now represents 37% of GDP expenditure, with 58% of the state budget allocated to defense4.
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More than 800 Ukrainian defense firms are active, covering a wide range of products from artillery and drones to electronic warfare and battlefield IT solutions.
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Ukraine’s industry is not only meeting a significant portion of its own military needs (covering about a third of the army’s requirements) but is also positioning itself as a future exporter and a key player in the global arms market.
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The government and industry leaders are seeking further investment to fully utilize their expanded production capacity, which currently exceeds what the national defense budget can support. (Perplexity.ai)
A 2024 WSJ article revealed the US problem with drones:
In the world of cheap drones, Skydio was the great American hope. Its autonomous flying machines gave the U.S. defense and police agencies an alternative to Chinese manufacturers, free from the security concerns tied to dependence on Chinese supply chains.
But Skydio’s vulnerabilities came into sharp focus days before the U.S. presidential election, when the Chinese authorities imposed sanctions and severed the company’s access to essential battery supplies.
Overnight, the San Mateo, Calif.-based Skydio, the largest American maker of drones, scrambled to find new suppliers. The move slowed Skydio’s deliveries to its customers, which include the U.S. military. (…)
Now, an even bigger breakthrough looms: mass-produced automated drones. In a significant step not previously reported, Ukraine’s drone suppliers are ramping up output of robot attack drones to an industrial scale, not just prototypes.
The large-scale production of autonomous drones could turbocharge Ukraine’s fight against Russia by overcoming the biggest obstacle those drones face: Russian electronic jamming.
Perplexity.ai:
As of late June 2025, Skydio, the largest U.S. drone manufacturer, has not fully secured non-Chinese battery supplies for its drones, but it is actively working toward this goal. After China imposed sanctions in October 2024—cutting off Skydio’s sole battery supplier, Dongguan Poweramp (a TDK subsidiary)—the company was forced to ration batteries to one per drone and warned customers that new battery supplies would not be available until alternative suppliers were secured, projected for spring 2025.
Throughout the first half of 2025, Skydio continued to face battery shortages, with no public confirmation that non-Chinese battery production had been fully established or deliveries resumed at pre-sanction levels. The company sought assistance from U.S. and Taiwanese officials and explored suppliers across Asia, but as of the latest available updates, Skydio’s inventory remained limited, and rationing policies were still in effect.
While on technology:
Chinese phonemaker touts 200,000 electric SUV orders in 3 minutes Xiaomi’s shares soar to all-time high after company launches pre-orders for YU7 sport utility vehicle
Xiaomi’s shares hit a record high after the Beijing-based smartphone maker said it received 200,000 pre-orders for its latest electric vehicle in three minutes, threatening the positions of BYD, Tesla and other carmakers competing in China’s cut-throat market. (…)
The latest EV, priced at Rmb253,500 ($35,370) to compete directly with Tesla’s Model Y, has been launched at a critical juncture for carmakers in China. (…)
Xiaomi said in a social media post it had received more than 289,000 pre-orders for the YU7 within one hour of the sale starting on Thursday. Chung estimated future monthly sales of the YU7 to be about 60,000 to 80,000 cars.
(…) last year’s release of the SU7, the company’s first car, drew 50,000 orders in 27 minutes. (…)
BYD leads China’s NEV market, with a share from January to the end of April of 29 per cent on sales just shy of 1mn cars. That compares with Tesla’s market share of just under 5 per cent and 3.5 per cent for Xiaomi. Foreign groups, which for decades dominated the market, now have a share of 31 per cent across EVs and fuel-powered cars. (…)
Xiaomi did what Apple, after spending $10B, could not.
Here’s a video on Xiaomi’s cool YU7. You should watch it before reading below.
There’s a dawning realization across the industry that China’s ascendance is both an existential business threat and a national security risk.
Disruption is nothing new for automakers, but they’ve never had to contend with the mountain of complex issues they face now — tariffs, geopolitical tensions, shifting regulations, broken supply chains, artificial intelligence, electrification.
- The emergence of powerful Chinese rivals, though, is a more ominous and permanent threat, experts agree.
- Foreign automakers’ share of the Chinese market has collapsed, while everywhere else in the world — except the U.S. — brands like BYD, Geely and Chery are expanding, opening super-efficient factories and selling hybrids and EVs at prices no one else can touch.
- Now China makes 70% of the world’s EVs and plug-in hybrids.
(…) “The Detroit Three (GM, Ford and Stellantis) used to think of China as their playscape — a land of endless growth and profits. Not anymore,” China auto expert Michael Dunne, CEO of Dunne Insights, tells Axios.
Chinese carmakers have a 30 to 40 percent economic advantage over their competitors, says Terry Woychowski, president of benchmarking analysis firm Caresoft Global.
- They’re more vertically integrated than traditional automakers, producing most components in-house, for example. They also use common parts across more vehicles, enabling lower prices.
- Government support — loans, land and incentives — surely helps, as well.
- Chinese carmakers received $231 billion in government subsidies between 2009 and 2023, according to the Alliance for Automotive Innovation, which represents the U.S. industry.
(…) How China took over the auto industry
In the late 1990s, the Chinese government allowed foreign automakers to enter its emerging market if they formed a joint venture with a Chinese partner and gave them at least 51% control.
- For years, the JV structure proved beneficial for both sides — Western carmakers pocketed billions of dollars selling cars to China’s growing middle class, and fledgling Chinese carmakers got to learn from the world’s best.
- Then, in 2015, China introduced a sweeping industrial plan, “Made in China 2025,” to upgrade its industrial base across various sectors, with “new energy vehicles” (NEVs) as a core pillar.
- China spent the next decade lining up battery supply chains, including raw materials and processing, and perfecting its capabilities in vehicle engineering and manufacturing.
“Imitate, improve and increase” are three words that sum up China’s strategy, according to Caresoft’s Woychowski, whose company specializes in dismantling cars down to their smallest bits for benchmarking purposes.
- A textbook example, he said, is the XPeng G6, which at first glance could be mistaken for a Tesla Model Y.
- In 2022, Tesla stunned the industry by introducing a manufacturing process that used die-casting to produce large sections of the Model Y in a single piece, eliminating hundreds of welded parts. That saved labor, weight and engineering costs.
- A year later, when XPeng launched the G6, it had already improved upon Tesla’s giga-casting innovation.
- Compared to the Model Y, said Woychowski, “they are much more refined castings. They are thinner, they are smaller, they are lighter, they are less expensive and they’re stiffer.”
Chinese efficiency is the industry’s new benchmark.
- Tesla CEO Elon Musk warned Chinese carmakers as so good they “will pretty much demolish” the rest of the industry.
- Or as Ford CEO Jim Farley says: “Everyone talks about how good they are or how cheap they are. What they should be talking about is how fast they are.”
And that was before Xiaomi’s YU7…