US Economy Contracts for First Time Since 2022

The US economy contracted at the start of the year for the first time since 2022 on a monumental pre-tariffs import surge and more moderate consumer spending, a first snapshot of the ripple effects from President Donald Trump’s trade policy.

Inflation-adjusted gross domestic product decreased an annualized 0.3% in the first quarter, well below average growth of about 3% in the prior two years, according to the government’s initial estimate published Wednesday.

The data highlight the scramble by companies to secure merchandise ahead of expansive tariffs, with net exports subtracting nearly 5 percentage points from GDP, the most on record, the Bureau of Economic Analysis report showed. A decline in federal spending also weighed on the figure.

Peter Tchir, Head of Macro Strategy at Academy Securities, discusses the spate of negative economic data and his concerns about the perception that America is losing interest in protecting global interests. Peter speaks with Tom Keene and Paul Sweeney on Bloomberg Radio.

Despite the contraction, the underlying details of the report suggest some key drivers of the economy remained on a good footing at the start of the year. Consumer spending — which accounts for two-thirds of GDP — advanced at a 1.8% pace, the weakest since mid-2023 but still better than economists had forecast. A gauge of underlying demand in the economy was solid, helped by the fastest growth in business equipment purchases since 2020.

Separate data out Wednesday showed that inflation-adjusted consumer spending climbed 0.7% last month — more than analysts expected — after an upward revision to the prior month. Meanwhile Federal Reserve’s preferred inflation gauge was unchanged in March, the tamest in almost five years, excluding food and energy.

Trump trade adviser Peter Navarro called the GDP report “the best negative print I have ever seen in my life” in an interview Wednesday with CNBC, saying consumption remained strong and the president’s deregulation efforts would buoy the economy.

The GDP figures showed imports surged an annualized 41.3% — the biggest advance in nearly five years. Because these goods and services aren’t produced in the US, they are subtracted from GDP. Many economists see the sharp widening of the trade deficit reversing in the second quarter, which would support a near-term rebound in growth.

However, looking further out, forecasters contend that the higher duties will cause a supply shock, challenging businesses and leading to a pullback in demand. Retaliatory tariffs would also discourage exports, setting up a tough backdrop for the rest of the year and making the odds of a recession essentially a coin flip.

“If the blowout on trade was the result of firms pre-buying imported inputs to beat the tariffs, the decay in the trade balance will reverse in Q2. That will generate some GDP growth,” Carl Weinberg, chief economist at High Frequency Economics, said in a note. “However, corrosive uncertainty and higher taxes —tariffs are a tax on imports — will drag GDP growth back into the red by the end of this year.”

The S&P 500 opened lower and Treasury yields fell. In a social media post, Trump said the US economy will “take a while” to show results of the current policies and blamed the stock market’s performance on his predecessor, Joe Biden.

Typically, imported merchandise moves into warehouses or directly to storefronts. However, the report showed business inventories contributed 2.25 percentage points to GDP during the quarter, the most since the end of 2021. The recent flood imports may instead show up in higher inventories in coming months, which could also provide a lift to second-quarter GDP.

Because swings in trade and inventories can sometimes distort overall GDP, economists prefer looking at final sales to private domestic purchasers for a better snapshot of demand. This measure increased at a 3% pace in the first quarter after rising an annualized 2.9% at the end of 2024.

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