The US economy has just registered its worst quarter since 2022, with the significant political changes of President Donald Trump to unnerve consumers and companies.
Gross Domestic Product (GDP), which measures all goods and services produced in the economy, registered an annualized rate of -0.3 percentage points in the first quarter, the Trade Department said Wednesday.
It is a sharp slowdown in relation to the rate of 2.4% of the fourth quarter and much worse than the 0.8% rate projected by economists. GDP is adjusted for seasonal variations and inflation.
US actions fell after the GDP report was released, with the future linked to Dow to fall 315 points, or 0.7%. S&P 500 futures were 1.2% lower and Nasdaq 100 futures fell 1.7%.
Trump administration has been in a chaotic rate of tariffs in recent months, increasing commercial tensions with China and disturbing Americans. Most economists say Trump’s monumental attempt to reshape global trade is likely to raise inflation in the United States and even trigger a recession.
The decline of the economy was driven by a larger commercial deficit – a result of the fact that Americans have anticipated their purchases to win Trump tariffs – and cuts in public expenses, according to a statement. Imports fired from -1.9% in the fourth quarter to 41.3% in the first three months of the year. However, exports registered a rate of 1.8%.
When imports exceed exports, this is subtracted from GDP and was by far the biggest obstacle to growth in the first quarter. The difference between imports and exports was the largest subtraction of GDP since 1947.
Report Details
There were several signs of weakness in Trump’s first economic report, but not everything was disgrace and sadness.
Consumer expenses, which feed about 70% of the US economy, slowly slowed down in the first quarter for a rate of 1.8%, considerably below 4% recorded in the previous three months. This slowdown was largely due to the fact that Americans have reduced their expenses in goods, having been the weaker rate since mid-2023.
Government spending also weighed on the economy, with federal expenses falling from 4% to -5.1% during the same period.
However, companies have indeed increased their expenses, probably to anticipate any expected price increases arising from Trump fares. Companies investment in the first quarter expanded at a rate of 9.8%, a sharp climb compared to -3% registered in the fourth quarter.
In a fragment of goods on goods, final sales to private domestic buyers – a key indicator of underlying demand in the economy – accelerated to 3% in the first quarter of 2.9% in the fourth quarter.
We still can’t say that it is a recession
Although the last GDP report points to a much weaker economy compared to last year, this does not necessarily mean that Americans are going through a recession.
A recession is technically defined as a widespread contraction of the economy – covering the labor market, consumer spending, industrial activity and companies – which lasts longer than a few months. And while it may seem that there is a recession, according to polls and inquiries, the economy is still in good shape on some important fronts.
Unemployment remains relatively low – 4.2% in March – companies continue to invest in their operations and consumers have not yet significantly retreated in their spending, according to government data.
Still, the economy can quickly get worse, especially if Trump increases the bet on his tariff attack.
“I don’t think we can call a recession from these data at this time, but it’s a sign that we are on this razor wire where the more time the tariffs remain in force, the more likely we are on their way to economic recession,” says Gregory Daco, chief economist at Ernst & Young, CNN’s Matt Egan.
A general rule to define a recession are two consecutive quarters of negative GDP, which has already happened. The National Bureau of Economic Research is the recession’s official referee, although the group’s decision may arise many months after the recession officially started.
The last time the US economy was in recession was in 2020, which lasted only two months and was driven by the Covid-19 pandemic. Prior to that, it was the great recession, which lasted from December 2007 to June 2009 and was the most severe economic recession since the great depression.
