The U.S. economy recorded its worst quarterly performance since 2022, contracting at an annualized rate of -0.3% in Q1, according to data released Wednesday by the Commerce Department. The decline, driven largely by widening trade deficits and decreased government spending, reflects growing concerns around President Donald Trump’s recent economic and trade policies.
This sharp downturn marks a significant reversal from the 2.4% growth in the previous quarter, and falls well below economists’ forecast of 0.8% growth. The report, which adjusts for inflation and seasonal trends, triggered a drop in U.S. stock markets following its release.
Economists point to the Trump administration’s escalating tariff policies, particularly against China, as key contributors to the economic pullback. The uncertainty has rattled both consumers and businesses, with many accelerating imports to avoid looming tariffs. Imports surged from -1.9% in Q4 to 41.3% in Q1, while exports rose just 1.8%, creating the largest trade gap drag on GDP since 1947.
President Trump, however, dismissed the negative economic data. In a social media post, he attributed the weak performance to what he called the lingering effects of the “Biden overhang,” stating:
“Our Country will boom, but we have to get rid of the Biden ‘Overhang.’ This will take a while, has NOTHING TO DO WITH TARIFFS.”
During a Cabinet meeting, Trump echoed that sentiment, saying:
“That’s Biden, that’s not Trump.”
Despite the contraction, White House trade adviser Peter Navarro described the GDP report as “the best negative print I have ever seen,” emphasizing a rise in domestic investment. However, much of that increase stemmed from businesses stockpiling goods ahead of new tariffs, according to the Commerce Department.
With rising inflation concerns and volatile trade dynamics, many analysts now worry that Trump’s aggressive trade restructuring could push the U.S. toward a recession later in the year.
Details from the report:
US Economy Contracts in Early 2025 Amid Tariffs and Spending Cuts, Despite Signs of Resilience
The U.S. economy unexpectedly contracted by 0.3% in the first quarter of 2025, marking its worst performance since 2022, as President Donald Trump’s sudden policy shifts — particularly aggressive tariffs — unsettled markets, consumers, and global trade relationships.
The report, released Wednesday by the Commerce Department, showed that Gross Domestic Product (GDP) fell well short of economists’ expectations for 0.8% growth, and significantly declined from the 2.4% annualized growth recorded in Q4 of 2024. The weak start to Trump’s second term was enough to spark a sell-off in U.S. stock markets shortly after the data was made public.
📉 What’s Behind the Slowdown?
The downturn was driven by a mix of weaker consumer spending, a surge in imports, and a steep drop in government outlays, according to the data.
- Consumer spending, which fuels nearly 70% of U.S. economic activity, slowed sharply to 1.8%, down from 4% the previous quarter. The pullback was mainly due to reduced spending on goods and marked the weakest consumer demand since mid-2023.
- Federal government spending also contracted significantly, falling 5.1% after a 4% increase in the previous quarter.
- A massive spike in imports — up from -1.9% to 41.3% — overwhelmed a modest 1.8% gain in exports, creating the largest trade deficit drag on GDP since records began in 1947.
Economists say the surge in imports was likely the result of companies and consumers front-loading purchases in anticipation of Trump’s expanding tariffs on Chinese and other foreign goods.
📈 Business Investment Offers a Silver Lining
Despite the overall contraction, some underlying data offered reasons for optimism:
- Business investment rose 9.8%, up from a 3% decline the previous quarter.
- Gross private domestic investment jumped to 21.9%, the highest rate since late 2021, suggesting companies are preparing for future growth or hedging against expected price hikes.
- Final sales to private domestic purchasers, a key measure of underlying economic demand, ticked up slightly to 3%, from 2.9% in Q4.
Stephen Miran, chair of the White House Council of Economic Advisers, called the investment figures a sign of corporate confidence, noting, “That’s not what firms do when they’re worried about the outlook.”
💬 White House Responds: ‘Biden Overhang’ to Blame
President Trump quickly dismissed blame for the contraction, instead pointing fingers at what he called the lingering effects of the Biden administration.
“Our country will boom, but we have to get rid of the Biden ‘Overhang,’” he wrote on social media. “This has NOTHING TO DO WITH TARIFFS.”
Press Secretary Karoline Leavitt echoed that sentiment, claiming the economy was poised for a strong rebound:
“The underlying numbers tell the real story of the strong momentum President Trump is delivering… setting the stage for a new Golden Age.”
⚠️ Inflation on the Rise
The report also signaled rising inflationary pressures:
- The Personal Consumption Expenditures (PCE) price index climbed 3.6%, up from 2.4% in Q4.
- Core PCE, which excludes volatile food and energy prices, rose 3.5%, compared to 2.6% previously.
These figures raise fresh concerns that Trump’s trade policies could exacerbate inflation and increase the risk of recession later in the year.
📊 Market Outlook: Cautious Optimism
While analysts are divided, many agree that the Q1 report reflects short-term disruptions driven by policy turbulence rather than long-term structural decline. However, inflation, trade instability, and weakened consumer spending remain significant risks heading into Q2.
Is the US in a Recession? Not Yet — But Risks Are Rising
Despite a weak first-quarter GDP report showing the U.S. economy contracting by 0.3%, experts say it’s too early to declare a recession — though warning signs are mounting.
While the economy is clearly slowing compared to last year, it hasn’t yet met the technical definition of a recession. According to economists, a recession involves a sustained, broad-based contraction across key sectors — including the labor market, consumer spending, industrial output, and business investment — lasting more than a few months.
So far, some economic fundamentals remain intact.
- Unemployment stands at 4.2% as of March, still relatively low by historical standards.
- Business investment is rising, and
- Consumers continue to spend, albeit at a slower pace, according to government data.
Yet, concerns are growing that the U.S. economy is teetering on a knife’s edge — particularly if President Trump intensifies his ongoing tariff campaign, which has already rattled markets and global supply chains.
“I don’t think we can call a recession from this data right now,” said Gregory Daco, chief economist at Ernst & Young. “But it is a sign that we’re on this razor-thin edge where the longer the tariffs remain in place, the more likely we are headed for an economic downturn.”
⚠️ Hiring Slows Sharply
In a worrying development, a separate report from ADP revealed that U.S. private-sector hiring dropped significantly in April. Employers added just 62,000 jobs, down from 147,000 in March — a notable slowdown that could foreshadow broader economic weakness.
“Unease is the word of the day,” said Nela Richardson, chief economist at ADP. “Employers are trying to reconcile policy and consumer uncertainty with a run of mostly positive economic data. It can be difficult to make hiring decisions in such an environment.”
🧠 What Defines a Recession?
By one common measure — two consecutive quarters of negative GDP growth — the U.S. is not yet in a recession. So far, only one negative quarter has occurred. The official designation comes from the National Bureau of Economic Research (NBER), which evaluates a broader range of indicators and often issues its recession calls months after the fact.
The last U.S. recession occurred in 2020, triggered by the COVID-19 pandemic and lasting just two months. Before that, the Great Recession (2007–2009) was the most severe downturn since the Great Depression.
🔍 The Outlook
While the current data doesn’t confirm a recession, the economic trajectory remains fragile. If trade tensions escalate further or if consumer sentiment weakens, the risk of slipping into a downturn could rise rapidly in the coming months.
Reports Source:
CNN (Washington)