The US economy contracts for first time in three years

The US economy contracted in the first three months of 2025, as consumer spending slowed and businesses rushed to stock up on imports ahead of new tariffs, according to Commerce Department data published yesterday.

America’s gross domestic product (GDP)—the value of all goods and services produced across the economy—fell at a 0.3% annual rate in Q1, marking the US economy’s first contraction since Q1 2022.

Unpacking the data

The main driver of the first-quarter GDP figures was President Trump’s expansive new tariff plan, which began to come into effect in Q1.

• America’s net exports, or the difference between imports and exports, subtracted ~5 percentage points from the top-level GDP figure, as businesses drastically increased their imports of foreign goods ahead of tariffs.
• It represents the largest quarterly GDP drag from net exports on record dating back to 1947.

Elsewhere, consumer spending rose by 1.8%—down from 4% the previous quarter, and the smallest increase since Q2 2023—while federal government spending fell 1.4% amidst a DOGE-led cutting effort.

In other economic news…The Conference Board’s index declined for a fifth consecutive month in April to reach its lowest level since May 2020, largely driven by falling expectations for the future—while Microsoft yesterday reported better-than-expected top and bottom line results, led by its Azure cloud business, and Meta also reported stronger-than-anticipated results.

Looking ahead: The April jobs report—the first "hard data" to cover the period after President Trump announced aggressive global tariffs—will be published tomorrow morning. Also on the earnings docket this week: Apple and Amazon, which report results later today.