The US economy signed in the first three months of 2025 with imports surges at the start of the second term when President Donald Trump took office to engage in a potentially costly trade war.
Gross domestic product, the sum of all goods and services produced between January and March, fell at an annual pace of 0.3%, according to a Commerce Department report adjusted for seasonal factors and inflation on Wednesday. This was the first quarter of negative growth since the first quarter of 2022.
Economists surveyed by Dow Jones were looking for a 0.4% profit after GDP rose 2.4% in the fourth quarter of 2024. But in the past day or so, some Wall Street economists have largely sought an unexpected rise in imports ahead of the Trump Tarif, which took place in early April.
In fact, imports spiked 41.3% for the quarter, driven by a 50.9% increase in goods. Because imports are subtracted from GDP, growth contractions may not be viewed negatively as trends may reverse over the subsequent quarters. Imports took more than 5% points from headline readings. Exports rose 1.8%.
“Maybe part of this negativity is because they are rushing to bring imports before tariffs go up, but there’s no way policy advisors can induce this sugar. Growth has simply disappeared.”
People will shop in New York City on July 27, 2023 at Manhattan stores.
Spencer Platt | Getty Images News | Getty Images
Consumer spending slowed over the period but was still positive. Personal consumption expenses increased 1.8% from the latest quarter increase since 2023 and 4% increase in the previous quarter.
Additionally, private domestic investments rose 21.9% over the period, driven by a 22.5% spike in equipment spending, which could have been primarily fee-driven.
Federal spending fell 5.1% in the quarter, shaving about a third of the percentage points of GDP.
“It’s not surprising that GDP hit in the first quarter, mainly because the trade balance exploded as companies imported crazy goods into frontrun tariffs. The more prominent numbers for the future of expansion were consumer spending, growing at a relatively weak pace. “It’s concerning, but it’s not surprising because it was due to the bad weather and surge in spending at the end of last year.”
Stock market futures slipped following the report, but the Treasury yields rose.
In the Truth Social Post following the report, Trump was not specifically addressing GDP, instead referring to “Biden’s stock market, not Trump’s stock market.”
“Taxes are kicking quickly, and businesses are beginning to move to America in record numbers,” Trump wrote. “Our country is lively, but we need to remove the Biden ‘overhang’. “This takes a while and has nothing to do with tariffs, but he left us with a bad number, but when the boom starts, it’s not something else to be patient!!!”
High inflation rate
The report provided a cross-signal for the Federal Reserve ahead of next week’s policy meeting. Negative growth numbers may push central banks to consider lowering interest rates, but inflation measures could be suspended for policymakers.
The Fed’s priority inflation measure, the Personal Consumption Expense Price Index, recorded a sharp increase of 3.6% in the quarter, from a 2.4% increase in the fourth quarter. Excluding food and energy, core PCE increased by 3.5%. Fed officials believe the core is reading better gauges of long-term trends.
Related readings known as the chain-weighted price index, which adjusts for changes in consumer behavior and other factors, rose 3.7%, well above the 3% estimate.
The market is still priced with a total of four moves by the end of the year, with fee cuts at its June meeting.
Also on Wednesday, the Bureau of Labor Statistics reported that its employment cost index rose 0.9% in line with forecasts.
While the economy is still adding jobs and consumers are still spending, the GDP report is increasing both the risks and interests of Trump’s recession as it negotiates deals with US trading partners.
The traditional rule of thumb for a recession is two consecutive negative quarters, but the official Arbiter, the National Bureau of Economic Research, uses the definition of “a significant decline in economic activity that spreads across the economy and lasts for more than a few months.”
In the next market, we will look for BLS Non-Farm Payrolls data to be released on Friday. Payrolls Processing Firm ADP reported Wednesday that private employment rose to just 62,000 in April.
