The US economy shrank in Q1 as tariff-related import surge trimmed gains: GDP report

Paul Davidson, USA TODAY

Wed, Apr 30, 2025, 5:35 AM 3 min read

The U.S. economy contracted early this year as businesses imported a massive trove of goods before President Donald Trump’s sweeping tariffs took effect, widening the trade deficit and curtailing growth.

Excluding the tariff effects, the underlying economy turned in a solid showing in the first quarter despite tumbling consumer confidence and rising business uncertainty over the import fees.

But forecasters expect the economy to slow dramatically later this year, with many predicting a mild recession, as the duties boost prices and hamper spending.

The nation’s gross domestic product, the value of all goods and services produced in the U.S., shrank at a seasonally adjusted annual rate of 0.3% in the January-to-March period, the Commerce Department said Wednesday. That’s down from a 2.4% increase in the third quarter and a 2.8% advance for all of 2024.

It marks the economy’s worst performance since early 2022.

Economists surveyed by Bloomberg had projected a meager 0.4% rise in output.

Forecasters widely expected the import surge ahead of the tariffs – a strategy known as frontloading – to dim the first broad snapshot of the economy in Trump’s second term. But its extent surprised many analysts.

Goods imports spiked at an annual rate of 50.9% the first three months of the year and the nation’s trade deficit widened by $14 billion to a record $162 billion in March. All told, the first quarter’s yawning trade gap subtracted about 5 percentage points from economic growth.

While imports should translate to overflowing business stockpiles that lift growth, that offsetting effect may take a few months to play out, said economist Michael Pearce of Oxford Economics.

A more telling economic gauge that captures consumer and business spending but strips out trade, inventories and government outlays – called final sales to private domestic purchasers – grew at a sturdy 3.9% annual rate.

Yet many experts figure the economy will stagnate within a few months and a growing share foresee a recession by the second half of 2025. They cite Trump’s tariffs as well as his sweeping federal layoffs and deportations of hundreds of thousands of migrants who lack permanent legal status.

Consumer spending softened, increasing 1.8%, down from a 4% rise in the fourth quarter, but a decent performance in light of stock market turmoil and poor weather early in the quarter. Consumption makes up about 70% of economic activity.

American households are still benefitting from relatively low debt and healthy wage growth that has outpaced inflation for nearly two years as a result of pandemic-related labor shortages.