US economy shrank at start of Trump's 2nd term
The U.S. economy shrank over the initial months of President Donald Trump’s second term as a flurry of tariff proposals stoked uncertainty among businesses and consumers.
U.S. gross domestic product, or GDP, declined at a 0.3% annualized rate over three months ending in March. The figure marked a sharp dropoff from 2.4% annualized growth over the final three months of 2024.
The measure of GDP fell in large part due to a surge of imports as firms stockpiled inventory to avoid far-reaching tariffs. Before the data release, analysts cautioned that a lowering of GDP on account of this trend would not reflect economic weakness.
The reading came in lower than most economists expected.
The government’s GDP formula subtracts imports in an effort to exclude foreign production from the calculation of total goods and services.
Imports surged more than 40% at the outset of this year as companies rushed inventory into the U.S. ahead of potential tariffs, data showed. By contrast, federal spending fell about 5% over the first three months of 2025.
The decline in GDP "primarily reflected an increase in imports," as well as a drop-off in government spending, the U.S. Commerce Department said.
The data covers a period before the so-called Liberation Day tariffs went into effect in early April.
Analysts widely expected a steep decline in economic performance at the outset of this year, though they disagreed over the severity of the slowdown.
“We anticipate a marked slowdown in the U.S. economy during the first quarter, driven by increasing policy uncertainty surrounding trade, tariffs, and immigration,” S&P Global Ratings said in a note to clients.
The data would likely be skewed by a flood of imports as companies sought to circumvent tariffs, S&P Global Ratings said. The GDP measure deducts imports to exclude foreign-made goods and services, so a one-time import surge could blur the finding.
“The first-quarter GDP reading may not provide an accurate reflection of underlying economic conditions because it's significantly influenced by the frontloading of imports,” S&P Global Ratings said.
Many observers define a recession through the shorthand metric of two consecutive quarters of decline in a nation’s inflation-adjusted GDP. The National Bureau of Economic Research, a research organization tasked with formally identifying a recession, uses a more complicated definition that draws on a range of indicators.
Despite flagging consumer sentiment and ongoing market turmoil, some key measures of the economy remain fairly strong.
The unemployment rate stands at a historically low level and job growth remains robust, though it has slowed from previous highs. Meanwhile, inflation cooled in March, putting price increases well below a peak attained in 2022, data showed.
The sturdy data offers at best partial reassurance, some economists previously told ABC News.
Measures of the economy like inflation and hiring are released one month after the data is gathered, and they often reflect slow-moving shifts in business or consumer behavior, the economists said. As a result, such measures can prove outdated, especially when the economy is in flux.
Speaking at the Economic Club of Chicago earlier this month, Fed Chair Jerome Powell acknowledged the “solid condition” of the U.S. economy, but he cautioned about signals of a potential slowdown.
“Life moves pretty fast,” Powell said.
