The US economy contracted for the first time in three years to start 2025 as a surge in imports dragged down GDP and prices increased more than forecast.
The Bureau of Economic Analysis’ advance estimate of first quarter US gross domestic product (GDP) showed economic growth contracted at an annualized rate of 0.3% during the year’s first three months, more than the 0.2% decline expected by economists surveyed by Bloomberg. The reading came in significantly lower than the 2.4% rate of growth seen in the fourth quarter of 2024.
This marked the first quarter of negative GDP growth since the first quarter of 2022.
“While a decline during an expansion is unusual, it’s not unheard of and the economy isn’t in a recession,” Oxford Economics chief US economist Ryan Sweet wrote in a note to clients on Wednesday.
The decline was driven by a large surge in imports, which are a subtraction in the calculation of GDP. Imports surged at an annualized rate of 41.3% in the first quarter as companies front-loaded orders ahead of anticipated tariffs from the Trump administration. The surge in imports was good for a -5% contribution to the GDP calculation in the first quarter.
Final sales of goods to domestic purchasers, another sign of demand in the economy, grew at a 3% annualized rate in the first quarter, above the 2.9% seen in the fourth quarter of 2024.
“Trade was a huge influence,” PNC Financial Services Group chief economist Gus Faucher told Yahoo Finance. “We saw companies bringing in a lot of imports to try to get ahead of tariffs. We saw a huge build in inventories. But when you look at underlying demand consumer spending growth, that was still pretty solid.”
The “core” Personal Consumption Expenditures index, which excludes the volatile food and energy categories, grew by 3.5% in the first quarter, above estimates for 3.2% and above the 2.6% seen in the prior quarter.
The report measures economic activity through the first three months of the year ending in March, meaning it covers how the US economy functioned ahead of President Trump’s tariffs but not after the president’s April 2 announcements that increased the effective tariff rate to its highest level in more than a century.
Read more: The latest news and updates on Trump’s tariffs
Economists and the Federal Reserve have been anticipating tariffs to push inflation higher and weigh on economic growth in the coming quarters.
“Overall this is indicating that tariffs are having an impact on the economy, that it’s been negative so far in 2025,” Faucher said. “And they’re likely to remain negative through the rest of this year.”
