The US economy contracted at an annualized rate of 0.5% in Q1 2025, a larger decline than the government’s second estimate of a 0.2% drop and the first quarterly contraction in three years. The updated news was posted this week by the US Bureau of Economic Analysis.
The weaker gross domestic product figure, shrinking faster than previously thought, was largely due to downward revisions to consumer spending and exports. Consumer spending rose only 0.5%, the slowest pace since the Covid times in 2020 and down from 1.2% in the previous first quarter estimate.
The first quarter 2025 slowdown compares to strong 4% growth of the economy during the last three months of 2024.
The latest estimate says exports grew only 0.4% compared to the earlier estimate of 2.4%. These declines were partially offset by a lower revision to imports (37.9% vs 42.6%). The increase in imports was said to be due to a rush by businesses and consumers to stockpile goods ahead of anticipated price increases prompted by tariff announcements. Meanwhile, federal government spending dropped 4.6%, the steepest decline since Q1 2022, and in line with the second estimate.
The report said the first quarter PCE, a measure of inflation, was up 3.7%.The Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) price index are both measures of inflation, but they differ in their methodology and scope, leading to variations in their reported figures. The PCE is the Federal Reserve’s preferred inflation gauge, while the CPI is more commonly reported in the media.
Earlier this week news reports say Federal Reserve Chair Jerome Powell told a House committee that businesses’ rush to build their inventories earlier this year ahead of tariffs taking effect has helped delay inflationary impacts from the higher import duties.He added that he expects inflation to show up in coming months.
