US economy shrank 0.5% between January and March, worse than 2 earlier estimates had revealed

Washington In an unexpected decline from previous projections, the Commerce Department said Thursday that the U.S. economy contracted at an annual rate of 0.5% between January and March due to business disruptions caused by President Donald Trump’s trade battles.

A spike in imports hurt first-quarter GDP as American individuals and businesses hurried to purchase items from overseas before Trump could apply taxes. According to earlier estimates from the Commerce Department, the economy shrank by 0.2% during the first quarter. Economists had predicted that the department’s third and final estimate would remain unchanged.

Related Articles

• 
  Big East Bay retail mall lands buyer in $80 million-plus property deal
  
• 
  Kroger plans to close 60 US stores in 18 months to improve profits
  
• 
  San Jose airport passenger trips remain lower than pre-COVID numbers
  
• 
  Sky-high housing prices spur San Jose charter school default
  
• 
  Intel, Walmart, other tech companies reveal 500-plus Bay Area job cuts
  

Gross domestic product, or the country’s output of goods and services, fell from January to March, marking the first contraction in the economy in three years and reversing a 2.4% growth in the last three months of 2024. The GDP shrank by over 4.7 percentage points as a result of imports, which grew 37.9%, the fastest since 2020.

Additionally, consumer spending slowed significantly, growing by just 0.5% as opposed to a strong 4% in the fourth quarter of 2024 and a significant drop from the Commerce Department’s earlier projection.

From January to March, a GDP data category that gauges the fundamental health of the economy grew at an annual pace of 1.9%. Although it’s a respectable figure, it’s lower below the Commerce Department’s prior prediction of 2.5% January-March growth and 2.9% in the fourth quarter of 2024.

Consumer expenditure and private investment are included in this category, although volatile factors like exports, inventories, and government spending are not. Although he doesn’t anticipate a major shift in his short-term economic prognosis, Ryan Sweet of Oxford Economics termed the decrease in that figure concerning.

The largest decline in federal government spending since 2022 occurred at an annual rate of 4.6%.

GDP is lowered by trade deficits. However, that is merely a mathematical issue. GDP should only include domestically produced goods and exclude imported goods. Therefore, imports that appear in the GDP report as business investment or consumer expenditure must be deducted in order to prevent them from inflating domestic production.

Since the import inflow from the first quarter is probably not going to occur again in the April–June quarter, it shouldn’t have an impact on GDP. In fact, a survey of forecasts conducted by the data firm FactSet indicates that experts anticipate second-quarter GDP to rebound to 3% in the second quarter.

The first analysis of GDP growth from April to June is due on July 30.

____

This article has been updated to reflect that, rather than 1986, the largest decline in federal funding occurred in 2022.