U.S. economy shrinks at 0.3% rate in first Trump-era GDP report
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The U.S. economy contracted at an annualized 0.3% rate in the first quarter, as a rush to import goods ahead of President Trump's tariffs weighed on economic growth, the Commerce Department said on Wednesday.
Why it matters: It's the first contraction in three years, a sign that the economy was softening before the highest tariffs took effect.
Yes, but: Looking past the headline figure, a key but narrow measure of growth kept pace, signaling at least some underlying momentum in the economy — at least once volatile measures like trade are stripped out.
- Real final sales to private domestic purchasers — the value of consumer spending, business and residential investment — increased 3% last quarter, up a tick from the fourth quarter.
Details: The overall GDP decline "primarily reflected an increase in imports" and a "decrease in government spending," the Commerce Department said in a release.
- The headline figure is a dramatic turnaround from the 2.4% growth rate in the final months of 2024.
- It is the weakest GDP print since the same period in 2022, when the economy contracted at a 1% annualized rate, similarly weighed down by volatile categories like trade and inventories.
Between the lines: Personal consumption expenditures increased at a 1.8% annualized rate in the first quarter, down from the 4% rate in the previous three-month period.
- That was largely due to a pullback in spending on goods, which increased by 0.5%, down from the 6.2% in the final quarter of 2024.
- The dip in consumer spending might reflect the effects of winter storms and the California wildfires in January, which held back shoppers.
- Business investment rebounded in the first quarter with a surge in spending on equipment, which might reflect attempts to get ahead of tariffs.
The big picture: The GDP data covers the January-March period, though trade tensions intensified shortly thereafter.
- The White House imposed a 10% universal tariff in April, alongside steep reciprocal tariffs that were later paused for 90 days.
- But it ramped up its crackdown on U.S.-bound Chinese goods with a levy of 145% that prompted retaliation. That has choked off trade between the two nations.
What's next: In some ways, the White House appears to be softening its approach, with tariff concessions for the auto industry and some electronics.
- But there is no clear path for lower tariffs, with mixed messages about whether the White House is engaged in trade negotiations with China.
The bottom line: The fate of economic growth might largely rest on White House trade policy, assuming no other economic shocks down the line.
Editor's note: This story has been updated with details from the GDP report.
