Economic Growth Reverses
The U.S. economy contracted at an annualized rate of 0.3% in the first quarter of 2025, marking a significant reversal from the 2.4% growth seen at the end of 2024, according to data from the U.S. Commerce Department.
The contraction followed a wave of tariff proposals from President Donald Trump’s administration that sparked widespread uncertainty among businesses and consumers.
Imports Spike Ahead of Tariffs
The drop in GDP was largely driven by a surge in imports—up more than 40%—as businesses stockpiled goods ahead of new tariffs set to take effect in April, including the so-called Liberation Day tariffs.
“The decline in GDP primarily reflected an increase in imports,” the Commerce Department said. Economists noted that the GDP formula subtracts imports to avoid counting foreign production, meaning the spike in early-year shipments distorted the numbers.
Federal Spending, Consumer Confidence Down
Federal government spending also fell by about 5% during the same period. Meanwhile, consumer sentiment worsened as markets responded to policy uncertainty.
S&P Global Ratings warned in a note to clients: “We anticipate a marked slowdown in the U.S. economy during the first quarter, driven by increasing policy uncertainty surrounding trade, tariffs, and immigration.”
They added that the data might not fully reflect the economy’s true condition:
“The first-quarter GDP reading may not provide an accurate reflection of underlying economic conditions because it’s significantly influenced by the frontloading of imports.”
Recession or Not?
While one quarter of economic contraction doesn’t confirm a recession, analysts are closely watching whether a second consecutive decline will follow. The National Bureau of Economic Research uses a broader range of indicators to determine recessions.
Despite this contraction, some economic fundamentals remain strong:
- Unemployment is near historic lows
- Job growth continues, albeit slower
- Inflation has eased significantly from its 2022 peak
Fed Chair Offers Cautious Optimism
Federal Reserve Chair Jerome Powell commented earlier this month at the Economic Club of Chicago, saying the U.S. economy remains in a “solid condition,” but warned of possible turbulence ahead.
“Life moves pretty fast,” Powell said.
Keep up with the U.S. economy during Trump’s second administration with us on Que Onda Magazine.