The U.S. economy shrank at a 0.5% annual tempo from January by way of March as President Donald Trump’s commerce wars disrupted enterprise, the Commerce Department reported on Thursday (June 26, 2025) in a downgrade from its earlier estimate.
First-quarter progress sank beneath a surge of imports as corporations within the United States rushed to usher in international items earlier than Mr. Trump might impose tariffs on them. The Commerce Department beforehand estimated that the economy fell 0.2% within the first quarter.
The January-March drop in gross home product — the nation’s output of products and companies — reversed a 2.4% improve within the final three months of 2024 and marked the primary time in three years that the economy contracted. Imports expanded 37.9%, quickest since 2020, and pushed GDP down by almost 4.7% factors. Consumer spending additionally slowed sharply. And federal authorities spending fell at a 4.6% annual tempo, the largest drop since 1986.
Trade deficits scale back GDP. But that is only a matter of arithmetic. GDP is meant to rely solely what’s produced domestically, not stuff that is available in from overseas. So imports — which present up within the GDP report as client spending or enterprise funding — should be subtracted out to maintain them from artificially inflating home manufacturing.
The first-quarter import inflow doubtless will not be repeated within the April-June quarter and due to this fact should not weigh on GDP. In reality, economists count on second-quarter progress to bounce again to three% within the second quarter, in accordance with a survey of forecasters by the info agency FactSet.
Thursday’s report was the Commerce Department’s third and last report on first-quarter progress. The first take a look at April-June GDP progress is due July 30.