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The US economy contracted by an annualised 0.3 per cent over the first quarter, as companies in the world’s largest economy responded to Donald Trump’s trade war by rushing to import goods.
The fall in the GDP reading — the first since 2022 — was worse than economists’ most recent forecasts and compared with the 2.4 per cent rise recorded for the fourth quarter.
Since large swings in imports can distort GDP statistics, some economists focus instead on other measures, such as investment and consumer spending.
Wednesday’s figures showed that the sum of consumer spending and gross private fixed investment increased by 3 per cent in the first quarter, up on the previous rate of 2.9 per cent.
The GDP fall was largely the result of US companies’ rush to buy goods from abroad ahead of Trump’s sweeping tariffs, with US Census Bureau data on Tuesday showing the trade deficit for goods hitting a record high in March.
In a post on his Truth Social network, Trump suggested the figures had “NOTHING TO DO WITH TARIFFS”.
Blaming former President Joe Biden, he added: “I didn’t take over until January 20th . . . When the boom begins, it will be like no other. BE PATIENT!!!”
The difference between imports and exports is an important factor in calculating GDP, which also measures domestic consumption, investment and government spending.
Economists anticipate some rebound in the second quarter as imports fall and previously stockpiled foreign goods are bought by US consumers.
Gregory Daco, chief economist, EY-Parthenon, said that companies’ “frontloading of orders to get ahead of tariffs” had “created a massive shock to GDP”.
But he referred to the factors behind Wednesday’s GDP figure as “unprecedented distortions” that were unlikely to change the Federal Reserve’s calculations about the underlying performance of the US economy.
Although the goods trade deficit dragged down the overall GDP figure for the quarter, this was partly offset by businesses spending on stockpiling.
Stock futures dropped and bond yields rose slightly following the data. The two-year Treasury yield, which moves with interest rate expectations, was up 0.01 percentage points to 3.66 per cent.
There was no significant shift in interest rate cut expectations following the data, with traders in the futures market still pricing in roughly four cuts this year.
Several Wall Street economists revised their estimates for first-quarter growth downwards after Tuesday’s goods trade figures were published.
The Bureau of Economic Analysis, which produced Wednesday’s GDP figures, added that the fall in output for the first quarter also reflected a decline in government spending.
In an acknowledgment of the stockpiling that took place ahead of Trump’s tariffs announcement this month, the bureau highlighted the rise in “private inventory investment”.
It added that consumer spending was also among the factors that partly, but not wholly, offset the increase in imports and the fall in government spending.
“The strong domestic demand figures are a poignant reminder of what might have been a graceful soft landing until the sweeping tariffs threw the economy off course,” said Eswar Prasad, professor at Cornell University.
Trump’s trade war is expected to lead to slower growth over the second half of this year, with higher prices weighing on consumption.
The IMF said last week that US GDP would expand by 1.8 per cent this year — down from its January estimate of 2.7 per cent. Many private sector forecasters predict no growth at all.
