US real gross domestic product unexpectedly fell at an annualized rate of 0.3% in the first quarter of this year, less than the expected increase of 0.2%.
The last contraction was in the first quarter of 2022, which triggered fears of a recession that didn’t materialize. It’s also far below the growth rate of 2.4% in the last quarter of 2024.
“The decrease in real GDP in the first quarter primarily reflected an increase in imports, which are a subtraction in the calculation of GDP, and a decrease in government spending,” a Bureau of Economic Analysis news release said. “These movements were partly offset by increases in investment, consumer spending, and exports.”
The new report from the Bureau of Economic Analysis showed how the economy has performed during the first three months of President Donald Trump’s second presidency. Since inauguration, the administration has made cuts to the federal government and announced tariffs, including on key trade partners like China and automobiles and some automobile parts.
“Anytime you see a contraction, or the opposite of economic growth, it is a concern,” Mark Hamrick, a senior economic analyst at Bankrate, told Business Insider before the GDP release. “But ultimately the question also is about the outlook.”
Hamrick added there are global headwinds to the US economy — tariffs and trade. “Tariffs present an upside risk to inflation and a downside risk to employment,” he said.
Stock futures were down after the report.
Several hard data measures haven’t reflected policy changes just yet. Still, the back and forth on tariff announcements and suspensions have contributed to people feeling worried or like they must spring into action, which has been reflected in some recent data.
In March, retail sales increased at motor vehicles and parts dealers. Consumers could face higher prices there and other areas of the economy as dealerships and business owners make tariff-related decisions. Inflation has continued to slow down, but people are worried that it could accelerate because of tariffs. Hamrick said the “economy is being affected by both the perceived and anticipated impacts of tariffs.”
David Kelly, chief global strategist at J.P. Morgan Asset Management, said in a note before the GDP release that “without a quick resolution to the trade war, imports, exports and inventories all look set to fall sharply.” He added people may slow down on making purchases, and companies may make some business changes like scaling back on hiring.
“Further federal cutbacks should prevent an overall government spending bounce-back, while tourism will likely be hit by the international reaction to the Administration’s policies,” Kelly said. “Given all of this, real GDP growth could be very slow, or even negative, over at least the first three quarters of 2025.”
Wednesday’s release reflects an advance estimate, so there’s a chance real GDP could be revised in the coming months. While the new GDP report doesn’t mean a recession, there are concerns about how the economy will evolve. “This is a huge wildcard in the face of a high degree of uncertainty felt by consumers and business leaders all of which undermines their ability to make decisions including on spending which would lend support to the economy,” Hamrick said.
This is a developing story. Please check back for updates.
