GDP declines 0.3% as imports surged ahead of Trump's tariffs Analysts noted that the weak economic report does not reflect overall consumer and business performance. Still, shock over Trump’s tariffs has begun to rattle data.

The U.S. economy contracted in the first quarter, weighed down by a deluge of goods imported by businesses eager to avoid higher costs, underscoring the disruptive nature of President Donald Trump's often chaotic tariff policy.

Gross domestic product decreased at a 0.3% annualized rate last quarter, the Commerce Department's Bureau of Economic Analysis said in its advance estimate of first-quarter GDP on Wednesday.

The decline was driven by a large surge in imports, which are a subtraction in the calculation of GDP. Imports surged at an annualized rate of 41.3% in the first quarter as companies front-loaded orders ahead of anticipated tariffs from the Trump administration. The surge in imports was good for a -5% contribution to the GDP calculation in the first quarter.

Final sales of goods to domestic purchasers, another sign of demand in the economy, grew at a 3% annualized rate in the first quarter, above the 2.9% seen in the fourth quarter of 2024.

"Trade was a huge influence," PNC Financial Services Group chief economist Gus Faucher told Yahoo Finance. "We saw companies bringing in a lot of imports to try to get ahead of tariffs. We saw a huge build in inventories. But when you look at underlying demand consumer spending growth, that was still pretty solid."

The "core" Personal Consumption Expenditures index, which excludes the volatile food and energy categories, grew by 3.5% in the first quarter, above estimates for 3.2% and above the 2.6% seen in the prior quarter.

The report measures economic activity through the first three months of the year ending in March, meaning it covers how the US economy functioned ahead of President Trump's tariffs but not after the president's April 2 announcements that increased the effective tariff rate to its highest level in more than a century.

Economists and the Federal Reserve have been anticipating tariffs to push inflation higher and weigh on economic growth in the coming quarters.

"Overall this is indicating that tariffs are having an impact on the economy, that it's been negative so far in 2025," Faucher said. "And they're likely to remain negative through the rest of this year."

Stock futures fell following the release as investors digested the quarterly economic growth update and a weaker-than-expected reading of private payroll additions for April. Data from ADP showed private payrolls grew by just 62,000 in April, far fewer than the 115,000 economists expected.

The benchmark S&P 500 (^GSPC) slid 1.4%, while the tech-heavy Nasdaq Composite (^IXIC) dropped around 2.1%.

The Dow Jones Industrial Average (^DJI) sank 0.8% after the blue-chip index notched its longest win streak of 2025.

Is the U.S. Economy Sliding Toward a Recession? Analysts Weigh In on Q1 GDP Decline

The U.S. economy contracted in the first quarter, sparking concerns about a potential recession. According to the Bureau of Economic Analysis, real GDP declined at an annualized rate of 1.4% from January to March, a sharp reversal from the 6.9% growth in Q4 2021. This unexpected downturn has analysts debating whether this is a temporary hiccup or a sign of deeper trouble. Here’s what experts are saying about the GDP decline and the broader economic outlook.

What Drove the GDP Decline?

The contraction was driven by several factors. A surge in imports, which subtract from GDP, played a significant role, reflecting strong consumer demand but also a growing trade deficit. Additionally, a slowdown in inventory accumulation by businesses contributed to the decline, as companies scaled back after aggressive restocking in late 2021. Government spending also fell, further weighing on growth.

However, not all signals point to weakness. Consumer spending, which accounts for roughly 70% of the economy, grew at a solid 2.7% rate, fueled by robust demand for services like travel and dining. Business investment in equipment and intellectual property also remained strong, suggesting confidence in future growth.

Analysts’ Takes: Recession or Rough Patch?

Economists are divided on whether the GDP drop signals a looming recession, typically defined as two consecutive quarters of negative growth. Here’s a roundup of perspectives:

Optimistic Views: Many analysts argue the economy remains fundamentally strong. Diane Swonk, chief economist at Grant Thornton, emphasized that the decline was driven by volatile components like trade and inventories, not a broad-based slowdown. “This is more noise than signal,” she said, pointing to healthy consumer spending and a tight labor market, with unemployment at a historic low of 3.6%. Goldman Sachs echoed this, noting that underlying demand indicators suggest growth will rebound in Q2.
Cautious Concerns: Others see warning signs. The Federal Reserve’s aggressive rate hikes to combat inflation, which hit 8.5% in March, could cool demand further. Rubeela Farooqi, chief U.S. economist at High Frequency Economics, warned that higher borrowing costs and persistent supply chain issues may curb growth. “We’re not in a recession yet, but risks are rising,” she said. The Conference Board also flagged slowing global growth and geopolitical tensions, like the Russia-Ukraine conflict, as potential headwinds.
Bearish Outlooks: A minority of analysts are more pessimistic. Nouriel Roubini, known for predicting the 2008 financial crisis, argued that stagflation—a mix of weak growth and high inflation—could tip the economy into recession by late 2022. He cited the Fed’s delicate balancing act: tightening too much risks choking growth, while doing too little could entrench inflation.

Key Factors to Watch

Analysts agree several indicators will shape the trajectory:

Inflation and Fed Policy: The Fed raised rates by 0.5% in May and signaled more hikes to tame inflation. If price pressures ease, the economy could avoid a hard landing. Persistent inflation, however, might force sharper rate increases, stifling growth.
Consumer Resilience: With savings rates declining and household debt ticking up, consumer spending’s durability is critical. Rising wages could help, but inflation’s bite may erode purchasing power.
Global Dynamics: Supply chain disruptions and energy price spikes, exacerbated by the Ukraine war, remain wild cards. A slowdown in China due to COVID lockdowns could also ripple through global trade.

What’s Next?

Most analysts expect a rebound in Q2, with GDP forecasts ranging from 2% to 3% growth, driven by continued consumer spending and easing inventory drag. However, risks loom. The yield curve, a reliable recession indicator, has shown signs of flattening, and business surveys reflect growing unease about costs and supply chains.

For now, the consensus leans against an imminent recession, but vigilance is warranted. As Lydia Boussour of Oxford Economics put it, “The economy is at a crossroads. It’s not doomed, but it’s not immune to shocks either.” Investors and policymakers will closely monitor data in the coming months to gauge whether the U.S. can navigate these choppy waters.

Though he wasn’t even president for the entire quarter, the first official report on the health of the U.S. economy, which opens a new tab in 2025, bears the unmistakable imprint of Donald Trump. An estimated 0.3% annualized decline in gross domestic product between January and the end of March resulted from a host of contradictory factors, overwhelmingly a rush of imports as firms and consumers looked to get ahead of crushing tariffs. For now, employment remains strong, spending is up, and the real shock of a trade schism awaits. While that makes Wednesday’s figure a hard-to-parse oddity, signs of weakness are creeping in.

Two numbers show the good and bad aspects of the U.S. economy, as it existed before Trump’s “Liberation Day” tariff announcements on April 2. Consumers, overall, continue to spend, especially on services and some durable goods like automobiles. But expectations of incoming trade levies pushed businesses to stockpile goods from overseas. Imports increased at a 41.3% pace, the yawning gap with exports knocking nearly 5 percentage points from headline GDP.

Column chart showing annualized change in different GDP components for Q1 2025

Given the still-low 4% unemployment rate during the quarter, while layoffs remained muted despite federal job cuts, the all-important American consumer is thus far cushioned. Set aside the noise from imports, and this is not a picture of an economy in recession. Even the apparent contraction might shift with time. GDP data, especially inventories, is notoriously difficult to collect. The Bureau of Economic Analysis will release two updates to its initial estimate, which can meaningfully change, opens a new tab the final number. Tweaks during periods of crisis, like 2008, can be much larger.

The unusualness of the current moment, when the greatest risk is not some cyclical downshift but Trump’s zig-zagging policies, will probably continue to scramble the GDP picture. Imports may snap back in the current quarter as tariffs bite, for instance. Instead, hard data like ocean shipping volumes presage the concrete effects of a break in commerce between the U.S. and China, with Los Angeles port operators expecting a 35% drop in cargo from Asia.

And as companies absorb trade-related costs, employment may take a hit. Though its projections often differ substantially from official figures, payroll processor ADP estimates that private-sector job gains slowed to 62,000 in April, a third the rate at the beginning of the year. Wage gains, too, seem to be drifting further down, opens new tab from post-pandemic highs. Amid the statistical noise, impossible-to-ignore signals will begin to emerge.

U.S. gross domestic product contracted at an annualized rate of 0.3% in the first quarter of 2025, according to an advance estimate published by the Bureau of Economic Analysis on April 30.

The result was weighed down by a flood of imports, which outpaced growth in consumer spending, investment, and imports.