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US GDP shrank by an annualised 0.2 per cent in the first quarter, according to revised data that confirmed the first contraction since 2022, as Donald Trump’s trade war ripples across the world’s biggest economy.
The fall in GDP compared with a 2.4 per cent expansion in the final quarter of 2024, and was largely caused by a surge in imports as companies rushed to buy foreign-made goods before the US president’s “liberation day” tariff announcement in early April.
Thursday’s reading from the Bureau of Economic Analysis was revised slightly higher from the 0.3 per cent contraction reflected in initial data released last month. But the change was not enough to put the economy in positive territory for the period as consumer spending cooled.
The statistics for the first quarter were distorted by a surge in imports — driven by companies’ tariff fears — that were not offset by a corresponding rise in inventory investment or purchases by consumers.
While investment rose in the revised statistics, that was largely counteracted by a fall in the rate of growth in consumer spending — especially in services and housing — as Americans contend with higher prices and uncertainty stemming from the trade war.
“You are seeing consumers that have slowed consumption,” said Andrew Hollenhorst at Citi. “That kind of aligns with what we’ve been hearing, especially from hotels and airlines, that services spending has been slowing.”
US consumer prices have risen more than 25 per cent since 2019, before the Covid-19 pandemic, which has weighed on consumer sentiment reports and prompted anxious shoppers to cut back.
The balance between imports and exports is an important factor in calculating GDP, which also measures domestic consumption, investment and government spending. The BEA calculates GDP based on numerous reports, so the figures do not always align precisely.
Economists said the revised numbers still did not fully reflect the rise in inventories that would be expected as a result of the imports jump.
“At the end of the day, it really reflects how it is very difficult with data that has long legs in it to capture all that’s happening in an economy with so many abrupt shifts in policy,” said Diane Swonk at KPMG.
“Because of the abrupt shifts, the numbers are still distorted, inventories are still too low,” she added. “There’s still going to be whiplash to the boom bust cycles that the on again off again tariffs are creating.”
Trump’s trade war is expected to be a drag on the US economy during the second half of the year. The IMF in April slashed its outlook for US GDP growth this year to 1.8 per cent, from 2.7 per cent in January.
A US court ruled this week that Trump’s “liberation day” tariffs were illegal, in a decision that could throw the president’s global trade policy into disarray. The White House said on Thursday it would fight the ruling.
