The US economy contracted in the first quarter of 2025, marking its first decline since early 2022. According to Commerce Department data released Wednesday, gross domestic product (GDP) fell at a 0.3% annualized rate during January through March, well below economists’ expectations of modest growth.
This disappointing economic report card, the first of President Donald Trump’s second term, represents a sharp slowdown from the 2.4% growth recorded in the previous quarter.
Key Details
The primary culprit behind the contraction was an unprecedented surge in imports, which skyrocketed 41.3% as businesses and consumers rushed to make purchases ahead of Trump’s tariff implementation in early April. This import surge subtracted more than five percentage points from the headline GDP figure—the largest such drag on record since data collection began in 1947.
Consumer spending, which drives approximately 70% of economic activity, also cooled significantly to a 1.8% growth rate, down from 4% in the previous quarter and representing the weakest performance since mid-2023. Additionally, federal government spending declined 5.1%, further weighing on overall economic output.
Not all indicators were negative, however. Business investment increased substantially during the quarter, rising 9.8% as companies likely accelerated equipment purchases and other capital expenditures before anticipated price increases from tariffs. Exports also showed modest growth at 1.8%.
Early Response
President Trump quickly responded to the weak figures on social media, deflecting responsibility from his administration’s trade policies. “Our Country will boom, but we have to get rid of the Biden ‘Overhang,'” he wrote. “This will take a while, has NOTHING TO DO WITH TARIFFS, only that he left us with bad numbers, but when the boom begins, it will be like no other. BE PATIENT!!!”
Financial markets reacted negatively to the news, with the Dow Jones Industrial Average dropping over 600 points (1.5%), the S&P 500 falling 1.8%, and the tech-heavy Nasdaq sliding 2.25% in early trading.
Economic Impact
The GDP report revealed concerning inflation trends, with the personal consumption expenditures price index rising 3.6%, up sharply from 2.4% in the fourth quarter, potentially complicating Federal Reserve decisions about interest rate cuts.
Adding to economic concerns, ADP reported that private sector employers added just 62,000 jobs in April, a significant drop from 147,000 in March, suggesting businesses may be growing cautious amid policy uncertainty.
Economists remain divided on whether this contraction signals the beginning of a recession, which is traditionally defined as two consecutive quarters of negative GDP growth.
