The economy unexpectedly contracted at a 0.3% annual rate in the first quarter of 2025, a preliminary reading dragged down by a historic increase in imports as families and businesses try to get ahead of President Donald Trump‘s tariffs.
The data, adjusted for inflation, were published Wednesday by the Bureau of Economic Analysis in its first report on GDP for the first quarter.
Imports subtracted nearly 5 percentage points from the headline GDP growth rate, a record amount. Yet other details of the report suggested underlying strength in the economy. Sales to private domestic purchasers, for instance, a metric unaffected by the huge change in imports, grew at a healthy 3% clip.
The decline in GDP is a notable shift from the final quarter of last year, which saw economic output increase by a solid 2.4%. It also marks the only time, other than one quarter in 2022, that the economy has contracted since the pandemic.
“Maybe some of this negativity is due to a rush to bring in imports before the tariffs go up, but there is simply no way for policy advisers to sugarcoat this,” said Chris Rupkey, chief economist at FWDBONDS. “Growth has simply vanished. Consumer surveys of the public at large say the economy is headed for a recession, and lo and behold, the first quarter GDP figures confirm it.”
The report will set off alarm bells for economists who fear that the uncertainty surrounding Trump’s tariff agenda could cause a recession in the coming months.
In addition to the spike in imports, decreases in government spending were behind the slump, according to the BEA.
These numbers are of particular concern for Trump because they capture the first quarter of his presidency and will set a benchmark for the coming four years.
“Our Country will boom, but we have to get rid of the Biden ‘Overhang,'” Trump said following the report on a social media post. “This will take a while, has NOTHING TO DO WITH TARIFFS, only that he left us with bad numbers, but when the boom begins, it will be like no other.”
Trump’s tariff agenda has taken center stage politically and represents the biggest rework of global trade by the United States in modern history. The rollout has been panned by many economists, and markets have reacted poorly not only to the tariffs but also to the uncertainty surrounding them.
They have also increased the odds of recession, many economists contend.
JPMorgan analysts put the chance of a global recession at 60% over the coming year if the tariffs are sustained. That is up from 40% before Trump announced the tariffs. Goldman Sachs also recently increased its projected odds of a recession from 20% to 45%.
It is complicated to gauge when recessions begin and end, but those in government and most economists look to the National Bureau of Economic Research, a private group, to declare one.
NBER defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months,” although there is a historical precedent of labeling two consecutive quarters of negative economic growth recessionary. The periods feature rising unemployment.
The Federal Reserve has a complicated job right now. It has kept interest rates higher to quash inflation, although if GDP continues to soften, it might be forced to lower rates to help stave off a recession.
TRUMP TARIFF INFLATION MAY NOT MATERIALIZE IF ECONOMIC OUTLOOK DIMS
Despite the concerns about the economy, there are some economic indicators that are still holding up.
For instance, layoffs remain extremely rare by historical standards. Also, consumer spending has held up, and retail sales this past month rose 1.4%, faster than expected. Inflation has also fallen in recent months, although some economists warn that it could tick back up with tariffs.
