US Economy Contracts Sharply in Early 2025

The U.S. economy contracted at an annualized rate of 0.5% in the first quarter of 2025, reversing a 2.4% growth in late 2024 and marking the first quarterly contraction in three years. The decline was driven by a nearly 38% surge in imports as businesses stockpiled ahead of President Donald Trump's threatened tariffs and by a sharp slowdown in consumer spending. Imports subtracted almost 4.7 percentage points from GDP, while federal government spending also fell at its steepest rate in years. Economists view the contraction as primarily a temporary result of pre-tariff stockpiling and expect a possible rebound in the second quarter. However, ongoing tariff uncertainty and weaker consumer confidence continue to pose risks to the economic outlook. Federal Reserve officials have pointed to alternative measures of economic strength but caution that persistent headwinds could complicate recovery.