US economy contracts more than thought on pre-tariff import surge
By Josh White
Date: Thursday 26 Jun 2025
(Sharecast News) - The US economy contracted at an annual rate of 0.5% in the first quarter of 2025, marking its first quarterly decline in three years, according to a final estimate from the Commerce Department on Thursday.
It was a downward revision from the previous estimate of a 0.2% decline, reflecting weaker-than-expected consumer spending and exports.
The contraction followed 2.4% growth in the final quarter of 2024, and was largely driven by a surge in imports, which soared 37.9% as businesses rushed to secure goods ahead of tariffs tied to president Donald Trump's trade policies.
The spike in imports, which subtract from gross domestic product calculations, alone reduced GDP by 4.6 percentage points.
Federal government spending also declined sharply, falling at a 4.6% annual rate - the steepest drop since 1986.
Consumer spending grew just 0.5%, down from the prior estimate of 1.2%, signalling a significant slowdown in household demand.
While business investment and inventories provided modest support, it was not enough to offset the drag from trade and government spending.
Inflationary pressures remained evident, with the GDP deflator rising to 3.8% and core personal consumption expenditures (PCE) climbing 3.5%, both slightly above expectations.
Despite the weak first quarter, economists expect a rebound in the second quarter as the import surge is unlikely to be repeated.
A FactSet survey forecast growth of around 3%.
However, concerns were mounting over stagflation risks, with JPMorgan cutting its full-year US growth forecast from 2% to 1.3%, citing the economic fallout from rising tariffs and persistent inflation.
Markets reacted negatively to the report, with the dollar weakening further as investors weighed the implications for monetary policy and economic stability ahead of the second-quarter GDP release on 30 July.
Reporting by Josh White for Sharecast.com.
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