U.S. Economy Sees First Decline in Three Years
Washington — The U.S. economy experienced a slight contraction of 0.2% from January to March, marking its first decline in three years. This downturn comes as a response to President Trump’s ongoing trade policies, which have disrupted many businesses, according to government reports issued on Thursday.
The decrease in economic output was influenced by a significant increase in imports, as companies rushed to procure foreign goods before anticipated tariffs were implemented. This surge in imports contributed to the negative GDP figure, reversing a robust 2.4% growth recorded in the final quarter of 2024. Notably, imports rose at a rate of 42.6%, the fastest increase since late 2020, impacting GDP growth by more than 5 percentage points. Consumer spending also saw a sharp decline during this period.
Additionally, federal government spending dropped by 4.6%, the largest fall in three years. While trade deficits typically lower GDP figures, this is a straightforward matter of accounting. GDP accounts only for domestic production, meaning imports—which are counted as consumer spending—must be subtracted from the total to avoid inflating the domestic output artificially.
Experts anticipate that the rise in imports during the first quarter is unlikely to recur in the upcoming quarter, which may help stabilize GDP figures moving forward.
On a more positive note, business investment surged by 24.4% from January to March. Companies increased their inventories in preparation for the tariffs, which added over 2.6 percentage points to the first-quarter GDP growth.
Moreover, a measure of underlying economic strength, which captures consumer spending and private investments while excluding volatile factors like exports and government expenditures, grew at a 2.5% annual rate during the quarter. Although this was slightly down from 2.9% in the previous quarter, it still signals a solid performance.
However, uncertainty hangs over the economic outlook due to the tariffs imposed by the Trump administration. With a 10% tariff applied to nearly all countries, alongside additional levies on steel, aluminum, and automobiles, trade dynamics remain complex. A recent federal court ruling disrupted these plans by blocking the 10% tariffs on several key imports, signaling concerns about the president’s authority in this area.
Thursday’s report is the second of three estimates regarding first-quarter GDP. The final version is expected on June 26.
