U.S. economic growth slowed sharply in the first quarter of 2025 as businesses rushed to stockpile goods ahead of President Trump’s sweeping tariff policies.
The nation’s gross domestic product — the total value of products and services — shrank at a 0.3% annual rate, down from growth of 2.4% in the final three months of 2024, the Commerce Department reported Wednesday in its initial GDP estimate. It’s the worst quarterly performance for the U.S. economy since early 2022, when the economy was in recovery after cratering during the COVID pandemic.
The U.S. economy was forecast to show 0.8% growth in the first three months of 2025, according to the average estimate of economists polled by FactSet.
The slowdown comes amid growing concerns that Mr. Trump’s wide-ranging tariffs could disrupt the U.S. economy, with some economists raising the chances of the U.S. slipping into a recession in 2025. Although the Trump administration’s blanket tariffs were announced on April 2 — after the end of the quarter — businesses sought to get ahead of the impact of the import duties by front-loading purchases early in the year.
The report may not fully reflect the state of economic growth, economists cautioned, noting that the figures are likely to be noisy because of the surge in imports as businesses sought to get ahead of tariffs. A rise in imports may appear to lower economic growth and show a shift away from domestic consumption, but that doesn’t tell the whole story, economists note.
Nevertheless, concerns about the tariffs caused businesses and consumers to change their behavior at year start, signaling that the rollout of steep import fees could create headwinds for the economy later in 2025, experts said.
“This artificial front-loading of demand sets the stage for a sharper demand cliff in Q2 — a far more troubling phase of the ongoing economic slowdown.” EY chief economist Gregory Daco said in an email.
Yet GDP could get a second-quarter boost as companies import fewer goods in the current quarter due to the rollout of the tariffs and the front-loading at the start of the year, according to Capital Economics.
Another key measure of the economy’s health — known as final sales to private domestic purchasers — also rose 3% in the first quarter, edging up from 2.9% in the previous three months. That suggests demand from consumers and businesses remains resilient despite mounting concerns about the economy.
“Overall, [the GDP data is] not as bad as feared, although some of the drop back in imports in the second quarter will now be partly offset by a slowing in inventory accumulation,” analysts with the investment advisory firm said in a report. “We forecast a 2.0% annualized rebound in second-quarter GDP.”
Impact of DOGE cuts
Growth in the first quarter was impacted by the increase in imports, as well as a 5.1% decline in government spending, the Commerce Department said.
Mr. Trump’s Department of Government Efficiency, helmed by billionaire Elon Musk, has effectively shuttered major agencies like the Consumer Financial Protection Bureau, cut hundreds of thousands of federal workers, and canceled funding for health and science research.
Economists expect the U.S. economy to slow in 2025, partly due to the impact of Mr. Trump’s tariffs, which are import duties paid by American companies like Walmart or Target. When faced with higher tariffs, companies typically pass on all or some of the costs to shoppers, which can depress consumer spending.
GDP growth is forecast to slow to 1.9% in 2025, according to FactSet. That’s down from 2.8% in 2024.
“[T]he inflation data will show when the price increases of tariffs hit consumers, which will deliver a real income shock that we expect to weigh heavily on spending growth,” Pearce said.
A miss on ADP employment numbers
Another red flag for the U.S. economy came on Wednesday with the release of ADP’s employment numbers for April, which showed private employers added 62,000 jobs this month, far fewer than the 134,000 jobs that had been forecast by economists, according to FactSet.
The monthly jobs report on Friday is expected to show that employers created 135,000 new jobs, a slowdown from 228,000 in March, FactSet data shows.
The combination of weak ADP data, the GDP report and other economic data “increasingly suggest a recession may have begun,” said David Russell, global head of market strategy at trading company TradeStation, in an email.
The shaky economic data could persuade the Federal Reserve to hold off on making more rate cuts, experts said. The central bank will make its next rate decision at its May 7 meeting, with most economists forecasting that the Fed will hold its benchmark rate steady.
“The data clearly buys the Fed some time to delay cuts; they will likely continue their wait-and-see approach to assess the inflation shocks stemming from the tariffs announced in April,” Olu Sonola, head of U.S. economic research at Fitch Ratings, said in an email.
