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U.S. Economy Shrinks 0.5% in First Quarter Following Import Surge

Consumer caution coupled with tariff-driven import frenzies drove first-quarter output lower under lingering inflation pressure

Shipping containers are stacked on container ships at the Port of Los Angeles on June 25, 2025 in Los Angeles, California.
Shoppers push their carts amid displays of goods in a Costco warehouse Wednesday, May 21, 2025, in Lone Tree, Colo.
FILE - The per-gallon price is illuminated on the pump at a Costco warehouse gasoline station Tuesday, April 1, 2025, in Thornton, Colo. (AP Photo/David Zalubowski, File)

Overview

  • The U.S. gross domestic product contracted at a 0.5% annual rate in Q1, the first decline in three years and a reversal of 2.4% growth in the previous quarter.
  • A 37.9% spike in imports ahead of President Trump’s planned tariffs subtracted nearly 4.7 percentage points from GDP.
  • Consumer outlays rose just 0.5% and federal government spending plunged 4.6%, marking the largest drop in government expenditures since early 2022.
  • The price index for gross domestic purchases jumped 3.4%, indicating that inflation pressures remain firm despite slower output.
  • Economists forecast about 3% growth in Q2 even as the Federal Reserve holds interest rates steady pending clearer inflation and labor market data.