The United States’ economic growth slowed sharply in the first quarter of 2025, as businesses rushed to stockpile goods ahead of President Trump’s sweeping tariff policies.
The nation’s gross domestic product — the total value of goods and services — contracted at a 0.3% annual rate, down from 2.4% growth in the final three months of 2024, according to the Commerce Department’s preliminary GDP estimate released Wednesday. It is the worst quarterly performance for the US economy since early 2022, when the economy was recovering from its collapse during the COVID pandemic.
The US economy is expected to grow by 0.8% in the first three months of 2025, according to the average estimate of economists polled by FactSet.
The slowdown comes amid growing concerns that Mr. Trump’s broad tariffs will disrupt the U.S. economy, with some economists predicting a recession in 2025. Although the Trump administration’s blanket tariffs were announced on April 2 — after the end of the quarter — businesses sought to mitigate the impact of the import duties by making purchases earlier in the year.
Economists cautioned that the report may not fully reflect the state of economic growth, citing the surge in imports as businesses sought to avoid tariffs. An increase in imports may appear to slow economic growth and indicate a shift away from domestic consumption, but economists argue that this does not tell the full story.
Nonetheless, concerns about the tariffs prompted businesses and consumers to change their behavior at the start of the year, indicating that the implementation of high import fees could create headwinds for the economy later in 2025, according to experts.
“This artificial front-loading of demand sets the stage for a sharper demand cliff in Q2 — a far more troubling phase of the ongoing economic slowdown.” Gregory Daco, EY’s chief economist, said in an email.
However, Capital Economics predicts that GDP will rise in the second quarter as companies import fewer goods in the current quarter as a result of the tariff rollout and front-loading at the start of the year.
Another key indicator of the economy’s health, final sales to private domestic purchasers, increased 3% in the first quarter, up from 2.9% the previous three months. This suggests that consumer and business demand remains strong despite growing economic concerns.
“Overall, [the GDP data is] not as bad as feared, although some of the drop back in imports in the second quarter will now be partly offset by a slowing in inventory accumulation,” analysts from the investment advisory firm said in a report. “We forecast a 2.0% annualized rebound in second-quarter GDP.”
Impact of DOGE cuts
The Commerce Department reported that growth in the first quarter was impacted by an increase in imports and a 5.1% decrease in government spending.
Mr. Trump’s Department of Government Efficiency, led by billionaire Elon Musk, has effectively shut down major agencies such as the Consumer Financial Protection Bureau, laid off hundreds of thousands of federal employees, and halted funding for health and science research.
Economists predict that the US economy will slow in 2025, in part due to the impact of Mr. Trump’s tariffs, which are import duties paid by American companies such as Walmart and Target. When faced with higher tariffs, businesses typically pass on all or some of the costs to customers, reducing consumer spending.
FactSet forecasts that GDP growth will slow to 1.9% in 2025. That is down from 2.8% in 2024.
“[T]he inflation data will show when the price increases of tariffs hit consumers, which will deliver a real income shock that we expect to weigh heavily on spending growth,” Pearce told investors.
A miss on ADP employment numbers
Another red flag for the US economy came on Wednesday with the release of ADP’s April employment numbers, which showed that private employers added 62,000 jobs this month, far fewer than the 134,000 jobs predicted by economists, according to FactSet.
The monthly jobs report on Friday is expected to show that employers created 135,000 new jobs, down from 228,000 in March, according to FactSet data.
The combination of weak ADP data, the GDP report, and other economic data “increasingly suggest a recession may have begun,” said David Russell, global head of market strategy at trading company TradeStation, in an email.
The shaky economic data may persuade the Federal Reserve to postpone further rate cuts, experts said. The central bank will make its next rate decision on May 7, with most economists predicting that the Fed will keep its benchmark rate unchanged.
“The data clearly buys the Fed some time to delay cuts; they will likely continue their wait-and-see approach to assess the inflation shocks stemming from the tariffs announced in April,” Olu Sonola, head of U.S. economic research at Fitch Ratings, said in an email.