The U.S. economy shrank in the first quarter despite underlying strength in consumer and business spending.
Gross domestic product contracted at an annualized rate of 0.3 percent, the Department of Commerce said on Wednesday.
The decline in U.S. gross domestic product marks a sharp reversal from the 2.4 percent growth rate recorded at the end of last year. This was the lowest rate of growth since 2022, when the economy avoided an official recession but contracted for two consecutive quarters.
The decline was driven by a widening trade gap, as imports surged ahead of new tariffs announced by the Trump administration as part of its efforts to reshape global trade and put the U.S. economy on a more sustainable path. In addition, government spending contracted. Also, the January through March period was marked by wildfires in California and unusually harsh winter weather in the South and elsewhere.
Economists had forecast a growth rate of 0.4 percent. But those projections were largely made before trade data released this week suggested even lower growth. Imports surged 5.0 percent in March, led by a 27.5 percent spike in consumer goods, a 6.6 percent rise in vehicles, and a 3.8 percent gain in capital goods. Exports, by contrast, edged up just 1.2 percent. The trade deficit ballooned to $162.0 billion from February’s $147.8 billion.
Under the government’s formula for calculating GDP—consumption plus investment plus government spending plus net exports—imports are a drag on growth. A surge in imports deepens the negative net export figure, subtracting from GDP even if those goods are headed for eager American consumers. The result: strong domestic demand or businesses rushing to import goods ahead of new tariffs can translate into weaker GDP growth.
