The US economy contracted at a slightly slower pace than initially estimated during the first quarter of 2025, according to revised data from the Commerce Department released on Thursday.
Gross Domestic Product (GDP) declined at an annualized rate of 0.2%, a modest improvement from the preliminary figure of a 0.3% decline, but still marking the first quarterly contraction since 2022.
The revised figures reflect a complex economic environment, shaped in large part by ongoing trade tensions and policy uncertainty. Businesses accelerated import activity early in the year in anticipation of new tariffs introduced under President Donald Trump’s administration. This front-loading of purchases caused imports to surge by 42.6%, the fastest rate since the third quarter of 2020. However, because GDP accounts only for domestic production, this sharp increase in imports subtracted significantly—more than five percentage points—from overall economic growth.
Consumer spending, a cornerstone of the US economy, was also revised downward. The decrease was driven by weaker expenditures on food, vehicles, and financial services. Additionally, federal government spending fell at a 4.6% annual pace, the sharpest decline in three years.
On the other hand, some aspects of the economy showed resilience. Business investment grew strongly at a rate of 24.4%, and increased inventory stockpiling ahead of the tariffs contributed positively to GDP. A measure of underlying economic demand, known as real final sales to private domestic purchasers, was still up 2.5% for the quarter—although that too was revised down from the initial estimate of 3.0%.
A federal court ruling this week added to the uncertainty surrounding trade policy by striking down the administration’s 10% tariffs on select imports, calling them an overreach of presidential authority. While the Trump administration has appealed the decision, the legal and political outcome remains unclear. Nonetheless, analysts expect the effects of the trade policies to linger into the coming quarters.
Economic forecasters remain divided on the longer-term implications. While some view the contraction as a temporary distortion due to import activity and policy uncertainty, others express concern that continued unpredictability could dampen both consumer confidence and business planning. The International Monetary Fund (IMF) recently cut its 2025 US growth forecast from 2.7% to 1.8%, citing trade disruptions as a contributing factor.
The Commerce Department’s report is the second of three GDP estimates for the first quarter. The final figure will be released on June 26. Until then, observers will be closely watching indicators of consumer spending, business sentiment, and the evolving legal landscape surrounding trade policy.
With input from CNN, the Financial Times, and the Associated Press.
