Written by AP Economics Writer Paul Wiseman
Washington (AP) In an unexpected reduction from its earlier estimate, the Commerce Department said Thursday that the U.S. economy contracted at an annual rate of 0.5% from January to March as President Donald Trump’s trade fights disrupted industry.
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A spike in imports caused first-quarter growth to plummet as American businesses hurried to import goods before Trump could implement tariffs. According to earlier estimates from the Commerce Department, the economy shrank by 0.2% during the first quarter. Economists had predicted that the department’s third and final estimate would remain unchanged.
Gross domestic product, or the country’s output of goods and services, fell from January to March, marking the first contraction in the economy in three years and reversing a 2.4% growth in the last three months of 2024. The GDP shrank by over 4.7 percentage points as a result of imports, which grew 37.9%, the fastest since 2020.
Additionally, consumer spending slowed significantly, growing by just 0.5% as opposed to a strong 4% in the fourth quarter of 2024 and a significant drop from the Commerce Department’s earlier projection.
A GDP data category that gauges the fundamental health of the economy grew at an annual pace of 1.9% from January to March, compared to 2.9% in the fourth quarter of 2024. Consumer expenditure and private investment are included in this category, although volatile factors like exports, inventories, and government spending are not.
The largest decline in federal government spending since 2022 occurred at an annual rate of 4.6%.
GDP is lowered by trade deficits. However, that is merely a mathematical issue. GDP should only include domestically produced goods and exclude imported goods. Therefore, imports that appear in the GDP report as business investment or consumer expenditure must be deducted in order to prevent them from inflating domestic production.
Since the import inflow from the first quarter is probably not going to occur again in the April–June quarter, it shouldn’t have an impact on GDP. In fact, a survey of forecasts conducted by the data firm FactSet indicates that experts anticipate second-quarter GDP to rebound to 3% in the second quarter.
The first analysis of GDP growth from April to June is due on July 30.
