US economy contracts in the first quarter

WASHINGTON, Apr 30 (Reuters): The US economy contracted for the first time in three years in the first quarter, swamped by a flood of imports as businesses raced to avoid higher costs from tariffs and underscoring the disruptive nature of President Donald Trump's often chaotic trade policy.
The Commerce Department's advance gross domestic product (GDP) report on Wednesday, however, grossly exaggerated the economy's dimming prospects. Though consumer spending slowed considerably, the pace of growth remained healthy. Businesses also boosted investment in equipment.
Nonetheless, both consumer and business spending likely reflected front-loading before the import duties kicked in. As such, the report reinforced Americans' growing disapproval of Trump's handling of the economy as he marks 100 days in office.
Trump swept to victory last November on voter angst over the economy, especially inflation. Consumer confidence is near five-year lows and business sentiment has tanked, while airlines have pulled their 2025 financial forecasts, citing uncertainty over spending on nonessential travel because of tariffs, which economists said will raise costs for companies and households.
"If the blowout on trade was the result of firms pre-buying imported inputs to beat the tariffs, the decay in the trade balance will reverse in second quarter," said Carl Weinberg, chief economist at High Frequency Economics. "That will generate some GDP growth. However, corrosive uncertainty and higher taxes - tariffs are a tax on imports - will drag GDP growth back into the red by the end of this year." Gross domestic product decreased at a 0.3 per cent annualized rate last quarter, the first decline since the first quarter of 2022, the Commerce Department's Bureau of Economic Analysis said in its advance estimate of first-quarter GDP. A column chart titled "US gross domestic product" that tracks the metric over the last year.
It was also weighed down by a decline in federal government spending, likely linked to the Trump administration's aggressive funding cuts, marked by mass firings and shuttering of programs.
Economists polled by Reuters had forecast that GDP increased at a 0.3 per cent pace in the January-March period.
The survey was, however, concluded before data on Tuesday showed the goods trade deficit surged to an all-time high in March amid record imports, which prompted most economists to sharply downgrade their GDP estimates. The economy grew at a 2.4 per cent pace in the fourth quarter.
Imports jumped at a 41.3 per cent rate, the largest rise since the third quarter of 2020, when the nation was in the throes of the COVID-19 pandemic, which fractured global supply chains. That obliterated a modest rise in exports, resulting in a large trade gap that chopped off a record 4.83 per centage points from GDP.
Imports were driven by both consumer and capital goods. The BEA said it had identified and removed an increase in imports of silver bars as a form of investment in the first quarter. Transactions in valuables, such as nonmonetary gold and silver, are not treated as investments and therefore purchases of these metals are not included in consumer spending, gross private domestic investment or government spending, it said.