- A new federal report found U.S. gross domestic product shrank in the first quarter of 2025.
- A tariff-driven spike in import activity led to the first contraction in three years.
- Other report findings include a slowdown in consumer spending and rising inflation.
A surge in import activity driven by businesses and consumers hoping to get ahead of looming tariff-related price increases dragged overall U.S. economic growth into negative territory in the first quarter of 2025, the first such contraction in three years.
A Wednesday Commerce Department report found growth in U.S. gross domestic product, a value measure of the total output of the country’s goods and services, fell by 0.3% in the first three months of the year. The negative indicator is an abrupt reversal of the healthy 2.4% uptick in GDP in the final quarter of last year and represents the first backslide in overall U.S. economic growth since the first quarter of 2022.
Overall U.S. imports were up over 41% for the quarter with goods imports jumping more than 50% over the period. Imports count against the GDP calculation because the category represents spending on foreign-made goods and services.
The report also includes data on consumer spending, which rose 1.8% in the first quarter of the year, the lowest quarterly increase since 2023 and inflation as measured by the Personal Consumption Expenditure Index, the Federal Reserve’s preferred inflation metric. PCE inflation came in at 3.6% over the first three months of the year, spiking from the 2.4% rate for the final quarter of 2024.
Economists had mixed reactions to the new report, with most noting that the tariff-induced surge in import activity could prove to be an aberration. But underlying data, including the slowdown in consumer spending and rising inflation, are once again raising recession concerns.
“Maybe some of this negativity is due to a rush to bring in imports before the tariffs go up, but there is simply no way for policy advisors to sugarcoat this. Growth has simply vanished,” Chris Rupkey, chief economist at Fwdbonds, told CNBC.
The White House responded quickly to the new report in a Wednesday press release, arguing that the negative GDP reading was a reflection of “the end of the Biden economic disaster, not the beginning of the economic boom that President (Donald) Trump is delivering.”
“It’s no surprise the leftovers of Biden’s economic disaster have been a drag on economic growth, but the underlying numbers tell the real story of the strong momentum President Trump is delivering,” White House press secretary Karoline Leavitt said in a statement. “Robust core GDP, the highest gross domestic investment in four years, job growth, and trillions of dollars in new investments secured by President Trump are fueling an economic boom and setting the stage for unprecedented growth as President Trump ushers in the new Golden Age.”
The tariff tumult
Trump announced a raft of country-specific reciprocal tariffs early this month along with a blanket 10% levy on foreign imports. On April 9, the president declared a 90-day pause on the reciprocal trade fees but kept the 10% assessment in place. That same day, Trump also announced an increase on imports from China that raised the effective levy on most imports from the country to 145%.
Last week, new global projections released by the International Monetary Fund cited trade tensions and high policy uncertainty among the primary drivers behind a major downgrade to expected economic growth and a significant uptick in future inflation.
“In the United States, demand was already softening before the recent policy announcements, reflecting greater policy uncertainty,” the IMF wrote in an executive summary of the report. “Under our April 2 reference forecast, we have lowered our U.S. growth estimate for this year to 1.8%. That’s 0.9 percentage point lower than January, and tariffs account for 0.4 percentage point of that reduction. We also raised our U.S. inflation forecast by about 1 percentage point, up from 2%.”d
Here’s where U.S. tariffs stand for the moment:
- China tariffs are at 145%, following a series of increases.
- Tariffs of 25% are in place on steel and aluminum imports, imported automobiles and goods from Canada and Mexico not covered by the United States-Mexico-Canada Agreement.
- Imports from all other countries are subject to a 10% trade levy.