US Economy Shrinks for First Time Since 2022 Amid Import Surge
WASHINGTON The U.S. economy contracted at a 0.3% annualized rate in the first quarter of 2025, marking its first decline since 2022, according to advance estimates released Wednesday by the Bureau of Economic Analysis.
Key Drivers of the Contraction
The downturn was primarily fueled by:
A record 41.3% surge in imports as businesses raced to stockpile goods ahead of anticipated Trump administration tariffs
The import spike alone subtracted 5 percentage points from GDP growth
Rising inflation, with core PCE prices jumping to 3.5% from 2.6% in Q4 2024
Despite the headline contraction, underlying demand remained robust:
Domestic consumer spending grew at a solid 3% rate
Business inventories swelled as companies prepared for trade policy changes
Economic Context
The decline follows four consecutive quarters of growth, including a 2.4% expansion in late 2024. Economists emphasized this doesn’t signal recession.
“Trade distortions dominated this report,” said PNC’s Gus Faucher. “The fundamentals, consumer spending, job growth still look healthy, but tariffs are starting to bite.”
Market Reaction
Financial markets tumbled on the news:
S&P 500 fell 1.4%
Nasdaq dropped 2.1%
Dow Jones slid 0.8%
The weak GDP print coincided with disappointing jobs data, ADP reported just 62,000 private sector hires in April, far below expectations.
Looking Ahead
Economists warn the Trump administration’s April 2 tariff hikes the steepest in over a century will likely:
Further elevate inflation
Continue distorting trade flows
Pressure growth through 2025
The Federal Reserve now faces renewed inflation pressures even as economic momentum slows—a challenging policy mix as it considers future rate moves.
Reference
US Economy Shrinks for First Time Since 2022 Amid Import Surge