U.S. economy shrank in first quarter; first drop in three years

U.S. Economy Shrinks for First Time in Three Years as Tariff Fears Loom

The U.S. economy contracted by 0.3% in the first quarter of 2025, marking the first decline in growth since the early days of the pandemic. The slowdown was largely driven by reduced consumer and government spending, as well as a spike in imports — with companies rushing to bring in goods ahead of President Donald Trump’s sweeping new tariffs.

📉 Why did the economy shrink?
According to the Associated Press, the drop in gross domestic product (GDP) — the broadest measure of economic output — reverses a solid 2.4% gain from the final quarter of 2024. Imports surged at a 41% annual rate, which shaved five percentage points off growth, as businesses raced to beat looming import taxes.

Consumer spending, a major engine of the economy, slowed to 1.8% growth, down sharply from 4% in the previous quarter. At the same time, federal government spending dropped by 5.1%.

However, business investment jumped nearly 22%, especially in equipment, suggesting that companies are still betting on long-term productivity. A specific GDP component — one that excludes volatile factors like exports and government spending — rose by 3%, signaling underlying strength in private sector activity.

📦 How Trump’s tariffs could drag on growth
Economists warn that President Trump’s aggressive trade policies could weigh more heavily on the economy in the second half of 2025. With new tariffs — including 145% duties on Chinese imports — many businesses are bracing for higher costs, supply chain disruptions, and reduced consumer demand.

Trump’s administration has insisted the tariffs will encourage companies to manufacture more domestically. But some economists believe the short-term pain could be significant.

Meanwhile, job growth may already be slowing. Data from payroll provider ADP shows that businesses added 62,000 jobs in April, down from 147,000 in March and well below expectations. Analysts say that could signal caution among employers amid uncertainty over the economic impact of the new trade rules.