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2w ago

U.S. Economy Contracts in Q1 2025 as Tariffs and Spending Cuts Take Toll

A 0.3% GDP decline marks the first economic contraction since 2022, driven by tariff-related import surges and reduced federal spending.

FILE - Delivery workers carry boxes outside a grocery store in the Chinatown neighborhood, Wednesday, April 9, 2025, in New York. (AP Photo/Yuki Iwamura, File)
FILE - Employees of Learning Resources, an educational toy company, work at a warehouse in Vernon Hills, Ill., Friday, April 11, 2025. (AP Photo/Nam Y. Huh, File)
Construction workers and electricians wait in line during a lunch break, as they build California's largest battery storage facility on a 43-acre site in Menifee, California, U.S., March 28, 2024. REUTERS/Mike Blake/File Photo
Employees work at a bio plant factory of Hanmi Pharm in Pyeongtaek, South Korea, July 1, 2021. Picture taken July 1, 2021. REUTERS/Heo Ran/File Photo

Overview

  • The U.S. economy shrank by 0.3% in the first quarter of 2025, according to the Commerce Department's Bureau of Economic Analysis, marking the first contraction since early 2022.
  • A 41% surge in imports, driven by businesses front-loading goods to avoid new tariffs, significantly subtracted from GDP calculations.
  • Federal government spending dropped by 5.1%, including an 8% decline in defense expenditures, further contributing to the contraction.
  • Consumer spending grew by 1.8%, while business investment surged over 20%, partially offsetting the negative impact of imports and spending cuts.
  • Economists warn of potential recession risks as businesses and lawmakers call for tariff relief, while the White House defends its trade policies and highlights economic resilience.