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U.S. Economy Shrinks 0.3% in Q1 2025, First Contraction in Three Years

Tariff-driven import surge and reduced federal spending contributed to the unexpected GDP decline, raising recession concerns.

President Donald Trump
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A shop with lanterns, woks, crockery and other kitchen items made in China are displayed in this popular destination on Grant Avenue in San Francisco's Chinatown in San Francisco, California, USA.
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Overview

  • The U.S. economy contracted at an annualized rate of 0.3% in the first quarter of 2025, marking the first quarterly decline since early 2022.
  • A 41% surge in imports, driven by businesses front-loading shipments ahead of new tariffs, significantly weighed on GDP calculations.
  • Federal government spending fell 5.1%, with an 8% drop in defense expenditures, while state and local spending rose modestly by 0.8%.
  • Consumer spending increased by 1.8%, led by gains in services like healthcare and housing, while business investment rebounded sharply by 21.9%.
  • Preliminary data for Q2 suggests continued economic weakness, heightening the likelihood of a technical recession with two consecutive quarters of negative growth.