US Economy Contracts in 1st Quarter for First Time Since 2022

Economists expected the economy to rebound in the second quarter.

People cross a street in New York City on April 4, 2025. Samira Bouaou/The Epoch Times

The U.S. economy contracted to kick off 2025 as a spike in imports and a sizable drop in government spending weighed on the country’s growth prospects.

The economy declined by 0.3 percent in the first quarter, down from the 2.4 percent expansion in the previous quarter, the Bureau of Economic Analysis said in a statement on April 30.

This was the first quarterly contraction since the first quarter of 2022, but it was better than some forecasts signaled.

The widely watched Atlanta Federal Reserve Bank’s GDPNow Model estimate had anticipated a 2.7 percent contraction. However, after adjusting for gold imports and exports, the alternative model forecast suggested a 1.5 percent decline in gross domestic product (GDP).

Imports, which are subtracted from the gross domestic product calculations, rocketed by 41.3 percent in the first three months of the year as businesses were front-running President Donald Trump’s tariffs.

GDP data indicate that the decline was also a reflection of a decrease in government spending. In the January–March period, government outlays fell by 1.4 percent, with federal spending plummeting by 5.1 percent.

This was the first negative government contribution to the GDP since 2022.

Increases in consumer spending, exports, and investment bolstered the national economy in the first quarter.

Real (inflation-adjusted) consumer spending rose by 1.8 percent, down from the 4 percent jump in the fourth quarter. This is a significant measure, as the consumption accounts for two-thirds of the nation’s growth.

Exports rose at a solid pace of 1.8 percent, likely driven by a weaker U.S. dollar. A lower greenback can make American-made products more attractive in the global economy because they are more affordable for foreign buyers.

Private domestic investment spiked by nearly 22 percent.

On the inflation front, the GDP price index—a gauge of changes in the prices of goods and services produced in the United States—surged by 3.7 percent, up from 2.3 percent in the previous three months.

Market Reaction

U.S. stocks slumped in pre-market trading following the release of the data, with the leading benchmark averages firmly in the red.

The blue-chip Dow Jones Industrial Average shed more than 100 points. The broader S&P 500 and the tech-heavy Nasdaq Composite Index fell by about 1 percent.

U.S. Treasury yields were mostly up across the board. The benchmark 10-year yield topped 4.21 percent.

The U.S. dollar index, a measure of the greenback against a weighted basket of currencies, rose by 0.2 percent.

In a Truth Social post, Trump attributed the stock market’s decline to his predecessor, stating, “I didn’t take over until January 20th.”

“Our Country will boom, but we have to get rid of the Biden ‘Overhang,’” he said. “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!”

Jeffrey Roach, chief economist for LPL Financial, said the GDP report indicates that “the economy is holding up.”

“A successful resolution to global trade policy would likely remove most of the volatility and uncertainty currently experienced by businesses and consumers. Moreover, the consumer is too strong to speculate the economy has dipped into recession,” Roach said in a note emailed to The Epoch Times.

“Outside of the trade-induced shocks to business inventory management, the economy is holding up.”

Imports Influencing the Data

The first-quarter GDP was one of the first hard data metrics to spotlight the effects of Trump’s tariffs on the broader economy.

A slew of data has highlighted a resilient economy, despite business and consumer surveys revealing deteriorating sentiment and economic outlooks caused by the tariffs.

Still, the labor market remains intact, with weekly initial jobless claims hovering around two-month lows. This week, the April jobs report is expected to show that 130,000 new jobs were added amid market turmoil and widespread uncertainty surrounding the administration’s policy changes.

Economists had anticipated a sharp slowdown in the U.S. economy, particularly following the Commerce Department’s latest trade data.

In March, the U.S. international trade deficit in goods increased to an all-time high of $162 billion, fueled by domestic companies’ front-loading their imports to avoid much of Trump’s tariffs.

The data indicated that imports of goods advanced by 5 percent from February to March, to $342.7 billion. This was driven by consumer goods ($102.8 billion), capital goods ($92.8 billion), and industrial supplies ($74.6 billion). Conversely, exports climbed by 1.2 percent monthly to $180.8 billion, the second-highest on record.

In the Bureau of Economic Analysis’s calculations, imports subtract from the GDP because they represent spending on goods and services produced outside the United States.

Glimpse at Quarter 2

A chorus of experts says that the first-quarter numbers could be a one-off.

“A surge in imports appears to have dragged down first-quarter GDP, but the reversal of that surge will have an offsetting effect in the second quarter, boosting growth to more than 2% annualised. Over the rest of 2025 and throughout 2026, however, we expect quarterly growth to slow to around 1.5% annualised,” Paul Ashworth, chief North America economist at Capital Economics, said in a second-quarter U.S. economic outlook report.

The New York Fed Staff Nowcast, an alternative GDP estimate, suggests the U.S. economy will expand by 2.7 percent in the second quarter.

But while forecasting models point to renewed growth, economists state that recession odds are elevated.

According to the April 2025 National Association for Business Economics survey, 50 percent of economists surveyed said there is a 25 percent to 49 percent chance of back-to-back quarters of negative GDP growth.

JPMorgan Chase said earlier this month that the probability that a recession will occur this year is 60 percent, up from the previous estimate of 40 percent.

“Even with the latest step-back from the draconian Liberation Day measures, what remains is still enough to push the U.S. and China—and thus likely the global economy—into a recession this year,” Bruce Kasman, chief global economist at JPMorgan, said in a note.

But while recent signals suggest the U.S. economy is hurtling in a bad direction, Comerica Bank’s chief economist Bill Adams said the country will likely avoid a recession.

“Comerica’s April forecast assumes that there is a substantial reduction in effective tariff rates and more certainty about economic policy relatively soon, which causes the flow of goods through the economy to normalize,” Adams said in a note emailed to The Epoch Times.

“That would allow the economy to dodge a recession in 2025, although growth is still forecast to slow from 2024’s pace.”