The U.S. economy contracted in the first quarter as President Donald Trump’s economic agenda took effect, according to new data released on Wednesday.
The Commerce Department’s Bureau of Economic Analysis (BEA) released its advance estimate for first quarter gross domestic product (GDP), which found the U.S. economy contracted at an annual rate of 0.3% in the first quarter, which runs from January through March.
Economists surveyed by LSEG had expected the economy to grow at a 0.3% rate in the quarter. The first quarter’s 0.3% contraction was slower than the 2.4% GDP growth recorded in the fourth quarter. The quarterly contraction was the first since the first quarter of 2022.
The decline in GDP was attributed primarily to an increase in imports, which count as a subtraction in the calculation of GDP, as well as a decrease in government spending. Those shifts were partially offset by increases in investment, consumer spending and exports.
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The 41% surge in imports was driven by consumer goods, primarily pharmaceutical goods, medicines and vitamins; and by capital goods like computers and parts.
The rise in imports was driven in part by importers preordering products in an effort to have the shipments beat the implementation of Trump’s tariffs.
Consumer spending rose 1.8% with gains for both services (+2.4%) and goods (+0.5%), as increases in spending on services were widespread and led by healthcare, housing and utilities. Within spending on goods, a 2.7% increase in nondurable goods was partly offset by a 3.4% decrease in durable goods.
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Business investment rose 21.9% in the first quarter after it posted a 5.6% decline in the fourth quarter. Nonresidential investment was up 9.8% in the quarter, led by a 22.5% increase in equipment spending.
Disposable personal income was 2.7% in the first quarter, up from 1.9% in the fourth quarter.
Personal saving as a percentage of personal income was 4% in the first quarter, up from 3.7% in the fourth quarter — although it’s down from 5.4% in the first quarter of 2024.
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Government spending was down 1.4% in the first quarter, led by a 5.1% drop in federal government expenditures. Federal spending on national defense activities was down 8%, while nondefense spending declined just 1%. State and local government spending rose by 0.8%, the slowest growth since the second quarter of 2022.
Ryan Sweet, chief U.S. economist at Oxford Economics, wrote that “GDP is backward-looking but there was some good news as real final sales to private domestic purchasers, the engine of the economy, posted a decent gain.”
“This will be tested as the economy is being hit now by several shocks, including tariffs, supply-chain stress, tighter financial market conditions and uncertainty, but the daily data imply that the engine of the economy didn’t stall early this quarter,” he said.
“The Q1 data on GDP highlight the bind that the Federal Reserve is in. The economy was essentially stagnant in the first three months of the year while growth in headline and core inflation accelerated, fanning concerns of stagflation,” Sweet added, noting that the firm still forecasts just one interest rate cut at the end of the year.
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