The U.S. economy contracted 0.3% in the first quarter of 2025, the first negative reading since 2022, according to an initial measurement released Wednesday by the Commerce Department.
The decline in gross domestic product was fueled by a massive surge in imports, while other parts of the U.S. economy showed signs of slowing. Consumer spending climbed 1.8%, the weakest pace since mid-2023. The report also showed inflation remained firm.
Stocks were down for much of the day but finished higher.
The GDP figures cover just the first three months of the year, and other data in the report shows business investment remained firm. Economists were expecting the GDP to have grown 0.4% for the first three months of 2025, compared with an increase of 2.4% in the fourth quarter of 2024.
The report is among the last data points to capture a snapshot of the U.S. economy before President Donald Trump's "Liberation Day" tariffs announcement sent shock waves around the world. More recent data has begun to capture some of that fallout. Earlier Wednesday, payroll processor ADP reported just 62,000 new roles added in April — well below both estimates.
Meanwhile, many companies have lowered their forecasts for 2025 or have withdrawn their financial guidance entirely.
The U.S. economy thus appears to be entering a period of instability — one that is largely self-inflicted. In a new interview with ABC News, Trump continued to downplay concerns about the economy, claiming he had signaled during his campaign that there would be a “transition period” as his policies took hold.
“Well, they did sign up for it,” Trump countered. “This is what I campaigned on.”
Many analysts are warning the economy is now undergoing a slow-motion swoon. Shipments to West Coast ports are plunging, while price increases are expected to begin eating into sales data and incomes as heightened uncertainty freezes investment.
"A period of stagnation now likely lies ahead if the current set of tariffs is maintained, with recession the most likely outcome if the additional reciprocal tariffs are imposed in full in July," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note Wednesday.
Following, the GDP report, stock markets saw heavy declines in opening selling.
In a Truth Social post Wednesday, Trump blamed former President Joe Biden for the weakness.
"This is Biden’s Stock Market, not Trump’s," he wrote. "I didn’t take over until January 20th. Tariffs will soon start kicking in, and companies are starting to move into the USA in record numbers. Our Country will boom, but we have to get rid of the Biden 'Overhang.' 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. BE PATIENT!!!"
Gross domestic product is the standard measure of a country’s economic growth. It is the sum of consumption, investment, government spending and the balance of trade, defined as exports minus imports.
In most circumstances, advanced economies like the U.S. try to aim for GDP of around 2% to 3% per quarter, adjusted for inflation. The U.S. has been doing slightly better than 2% for the past two years — and until Trump began his tariffs rollout, it was expected to have performed at about that pace.
But shock over Trump’s tariffs has begun to rattle economic data. On Tuesday, the Commerce Department reported the U.S. trade deficit in merchandise unexpectedly widened in March to an all-time high as companies began ramping up imports to get ahead of Trump’s import duties.
Having a large volume of imports that results in a trade deficit does not necessarily signal economic weakness, assuming the imports are balanced out by consumption and investment. Although the U.S. has been operating at historically wide trade deficits for many years, they have not substantially affected GDP performance.
But the latest surge in imports likely swamped the ability of the rest of the economy to absorb them in the short term, something that would result in lower GDP.
Still, the measurement does not reflect overall consumer and business performance, analysts with Morgan Stanley wrote in a note to clients.
“It’s important to note that this reflects front-running and not current economic weakness,” they wrote.
What about the rest of the economy? Analysts say consumption and investment likely slowed but did not reverse.
“The story, in our view, is one of a US economy that exited the first quarter on solid footing,” the Morgan Stanley analysts said.
Analysts with JP Morgan note that if Q1 GDP is unexpectedly weak, Q2 GDP could be unexpectedly strong.
“If imports collapse in coming months, there will be a temporary bounceback in measured GDP in 2Q,” they wrote in a note.
CORRECTION (May 1, 2025, 2:35 p.m. ET): A previous version of this article misstated in a headline of the chart how the changes in GDP will be tracked. The chart has been updated using the percentage change in GDP from the previous quarter, not year over year.
