US GDP Drops by 0.3% in Q1 2025 Amidst Trade War

The United States’ gross domestic product dropped by 0.3% in the first quarter of 2025 down from a 2.4% increase in the third quarter of 2024 and a 2.8% advance for all of 2024, according to the Commerce Department.

This marks the US economy’s worst performance since early 2022 and is attributed to businesses importing a massive trove of goods before President Donald Trump’s sweeping tariffs took effect, thus widening the trade deficit and curtailing growth.

According to the released figures, Goods imports spiked at an annual rate of 50.9% in the first three months of the year, and the nation’s trade deficit widened by $14 billion to a record $162 billion in March.

Consumer spending also slowed during Q1 2025 but was still positive as Personal consumption expenditures increased 1.8% for the period, the slowest quarterly gain since Q2 of 2023 and down from a 4% gain in the prior quarter.  private domestic investment, however, soared during the period, rising 21.9%, primarily driven by a 22.5% surge in equipment spending.

High Inflation

There also appeared to be a high inflation rate as the personal consumption expenditures price index, the Federal reserves’ preferred inflation measure, posted a 3.6% gain for the quarter, up sharply from the 2.4% increase in Q4. Excluding food and energy, core PCE was up 3.5%.