The U.S. economy shrank by 0.3% in the first quarter of 2025, marking the first contraction since early 2022.
The decline was largely driven by a surge in imports, which soared 41.3%, as businesses rushed to stockpile goods ahead of President Donald Trump’s newly imposed tariffs. Imports subtract from GDP calculations, contributing to the negative growth figure.
Despite the contraction, consumer spending remained positive, increasing 1.8%, though at a slower pace than previous quarters. Private domestic investment also saw a sharp rise of 21.9%, fueled by a 22.5% increase in equipment spending, likely influenced by tariff concerns.
The Federal Reserve faces a complex decision ahead of its upcoming policy meeting. While the negative GDP growth may push the central bank toward interest rate cuts, inflation remains a concern, with the U.S. Personal Consumption Expenditures (PCE) price index rising 3.6% for the quarter.
Markets reacted cautiously, with stock futures slipping and Treasury yields climbing. As the Trump administration navigates trade negotiations, economists warn that continued uncertainty could weigh on future growth prospects.
Next up, U.S. employment data.