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Takeaways
- The U.S. economy shrank 0.3% per year in the first three months of this year, marking the first drop in national production since 2022.
- The decrease was due to a surge of imports, as people raced to buy things from abroad before President Donald Trump's tariffs made them more expensive.
- Other aspects of GDP, such as consumer spending, showed that the economy was running at a healthy rate.
The U.S. economic growth has slowed down after a nearly three-year run of steady growth.
Bureau of Economic Analysis reports that the nation’s GDP, or Gross Domestic Products, declined at an annual rate of 0.3 percent in the first three months. This is the first time since the first quarter 2022 that the widely-watched measure of the economy has declined. This is a significant drop from the previous quarterly growth rate of 2.4%.
The slowdown is a result of tariffs. It was mainly caused by a surge in imports over the past few months as individuals and companies rushed to buy foreign goods before President Donald Trump’s tariffs increased their price. The way the GDP is calculated, every dollar spent on imported goods drags the GDP down.
Mike Fratantoni is the chief economist of the Mortgage Bankers Association. He wrote in a comment that businesses were eagerly rushing to import goods to the country. They were also willing to store the goods until they needed them for production.
Other economic indicators were strong, too, despite the decline in imports. Consumer spending, which is the main engine for the U.S., increased at a rate 1.8% per year, while investment surged by 21.9%. This was largely due to a 22.5% rise in equipment purchases.
The tariffs are the main reason for the slowdown in growth.
In a recent commentary, Kathy Bostjancic wrote: “We expect consumer spending to slow down as consumers have already pushed forward their spending on goods for future months. The tariff price shock will also curtail spending. And a softening of the labor market is likely to impact household expenditures.”
Economists say that slow economic growth combined with high prices, fueled by tariffs, can lead to “stagflation,” and even a recession. This is especially true if Trump’s “Liberation Day”, or “Tariffs on Foreign Countries” goes into effect in the second half of the year. The White House is currently trying to negotiate trade deals with dozens countries that were targeted by higher “reciprocal tariffs” announced earlier this month. However, the negotiations have been paused for a period of 90 days.
Oliver Allen wrote in a recent commentary that if current tariffs continue, the economy will likely stagnate. A recession is more likely if additional reciprocal duties are imposed fully in July.
The GDP figure released on Wednesday was a preliminary estimate that will be revised two more times in the months to come before it is finalized.
Update for April 30, 2025 This article has been updated to include comments from economists.
