The U.S. economy shrank at an 0.5% annual pace in the first three months of 2025, a more rapid decline than previously estimated, the Commerce Department announced Thursday in its third and final GDP report for the first quarter.
Earlier estimates put the growth rate of gross domestic product at -0.3% and -0.2%. The Commerce Department said the downward revision was driven primarily by consumer spending, which was weaker than first estimated, and imports, which increased even more than initially reported as firms and households rushed to secure goods from foreign suppliers ahead of higher tariffs put in place by President Trump. Imports surged 37.9% during the quarter, dragging down GDP growth by nearly 4.7 percentage points.
The growth numbers provide a sharp contrast with previous data, which show GDP growing at a 2.4% annual rate during the fourth quarter of 2024. Consumer spending growth hit a 4% rate in late 2024 but grew by a much weaker 0.5% to start 2025.
Daniel Hornung, who served on the National Economic Council during the Biden administration, told Semafor that the data “suggests consumers were likely more on edge than previously thought.”
Consumers cut back on entertainment and dining in particular, noted Gregory Daco, chief economist at EY-Parthenon, suggesting they are waiting to see how the tariff increases play out. That final result is still unknown, generating uncertainty that could continue to weigh on growth in the coming months.
"What we're witnessing is an economy temporarily buffered from the tariff shock by smart logistics maneuvers, proactive pricing strategies and some foreign exporter concessions," Daco said.