The US economy contracted for the first time in three years in early 2025, as a surge in imports weighed on gross domestic product (GDP) growth and prices rose more than expected.
A preliminary estimate by the Bureau of Economic Analysis (BEA) showed that US first-quarter GDP contracted at an annualized rate of 0.3%, larger than the 0.2% decline expected by Bloomberg analysts. This reading was significantly lower than the 2.4% growth rate recorded in the fourth quarter of 2024.
This was the first time the US economy had recorded a GDP contraction since the first quarter of 2022.
The main reason for the decline was a surge in imports, which contributed negatively to the GDP calculation. Imports jumped at an annualized rate of 41.3% as companies accelerated orders ahead of the Trump administration’s implementation of new tariffs. This increase in imports contributed about -5% to the overall GDP calculation.
However, final sales of goods to domestic buyers, a key indicator of economic demand, rose at an annualized rate of 3%, slightly higher than the 2.9% in the fourth quarter of 2024.
Meanwhile, the Core Personal Consumption Expenditures (Core PCE) index, which excludes volatile food and energy components, rose 3.5% in the first quarter, beating expectations of 3.2%, and up from 2.6% in the previous quarter.
The report covers U.S. economic activity in the first three months of the year, which was before President Trump's tariff announcement on April 2 that raised the effective tariff rate to its highest level in more than a century.
Economists and the Federal Reserve had already expected the tariffs to boost inflation and weigh on economic growth in the coming quarters.
