U.S. Economy Shrinks in First Quarter of 2025

The U.S. economy shrank by 0.3 percent in the first quarter of 2025, data released Wednesday by the Bureau of Economic Analysis shows. In Q4, real GDP had still grown by 2.4 percent on an annualized, seasonally adjusted basis. Economists had expected a gain of 0.4 percent on average. Stock markets slipped on the news. Imports to the U.S. soared ahead of the Trump administration's tariff announcements, which had a negative effect on GDP.

U.S. goods imports rose by 50 percent in Q1. These goods are not yet sold as importers were looking to stock up ahead of tariffs coming into effect. Yet, they were subtracted from GDP. Once the imports are sold, they would add to GDP again, forming a zero-sum contribution in the long term.

Weaker consumer spending and greatly decreased government spending under the new administration also contributed to reversing GDP growth. A positive effect on GDP was investments, which CNBC reported could also be tariff-related as equipment spending soared.

The last time the U.S. economy shrank was in Q1 of 2022, when the Russian invasion of Ukraine threw global markets into disarray. GDP contracted by 1 percent then, and recovered to a growth of 0.3 percent in the following quarter. Initially, the second quarter of 2022 also showed a decline of GDP, which would have meant the U.S. economy would have entered a technical recession. The U.S. also suffered a short but deep recession in Q1 and Q2 of 2020 when it experienced the steepest decline ever recorded in the course of the coronavirus pandemic. U.S. GDP growth jumped up again in Q3 of that year, however.