The U.S. economy contracted sharply to start 2025 — worse than previously thought
Final GDP estimate for the first quarter confirms Trump’s tariff blitz is weighing on growth even more than previously thought.
M. Scott Brauer/Bloomberg via Getty Images
The U.S. economy shrank by 0.5% in the first quarter of 2025, the Bureau of Economic Analysis said Thursday, revising down its previous estimate of a 0.2% drop. It’s the sharpest, ugliest contraction since the height of the COVID-19 pandemic and a stark reversal from 2.4% growth in the fourth quarter 2024.
Behind the decline: A spike in imports, up as much as 42% in earlier readings, which grew as businesses scrambled to front-load goods ahead of tariff hikes imposed by President Donald Trump’s administration. Imports subtract from GDP in official calculations, so the sudden rush for foreign goods slashed growth.
Ugly reads almost across the board
Consumer spending and exports were also revised downward, as shoppers pulled back amid rising prices, fears of a recession, and turbulence throughout the larger global economy. Government spending fell sharply, while investment offered one of the few bright spots. Final sales to private domestic purchasers, a key measure of underlying demand, rose just 1.9% — also worse than previous estimates, one more weak showing.
The final GDP number cements what many on Wall Street had already feared: Trump’s second-term trade wars are exerting an extreme chilling effect on domestic growth. Earlier this month, the World Bank downgraded its global forecast, pointing to U.S. tariffs as a key drag on both American and emerging market growth. But the World Bank singled out the U.S. as the “biggest loser” even as the U.S.’s own trade policy created the conditions.
Per the BEA data, inflation remains sticky, too. The PCE price index rose to 3.7%, up from prior estimates, while core inflation (excluding food and energy) ticked up to 3.5%. Final sales to private domestic purchasers, a key measure of underlying demand, rose just 1.9% — also worse than previous estimates, one more weak showing.
Will it get better or worse from here?
The question now is whether this marks a one-off shock or a broader and more extended slowdown. With tariff policy only looking more uncertain amid legal rejections and reversals, and few trade deals on the table despite constant White House hints that they're just around the corner, a rebound in the second quarter is far from guaranteed.
Adding to the murky outlook, analysts at JPMorgan Chase this week forecasted a 40% chance of recession in the second half of 2025.