The U.S. economy experienced a contraction of 0.5% in the first quarter of the year, spanning from January to March. This figure represents a downgrade from earlier estimates, which had initially pegged the contraction at 0.2%. This downturn marks the first time the U.S. economy has shrunk in three years, reversing a 2.4% increase recorded in the last three months of 2024.

The primary reasons cited for this economic contraction include President Donald Trump's trade policies and trade wars, which disrupted business activities. A significant factor was a surge in imports, as companies in the United States accelerated their purchases of foreign goods to avoid anticipated tariffs. Imports expanded by an impressive 37.9%, the fastest rate since 2020, consequently pushing down the Gross Domestic Product (GDP) by nearly 4.7 percentage points.

Beyond the import surge, other components of the economy also showed weakness. Consumer spending slowed sharply, indicating a reduction in household expenditures. Additionally, federal government spending fell at an annual pace of 4.6%, marking the largest drop since 1986. It is important to note that trade deficits reduce GDP due to the way GDP is calculated; it accounts only for domestically produced goods and services. Therefore, imports, which might appear as consumer spending or business investment, must be subtracted to prevent them from artificially inflating the measure of domestic production.

Despite the first-quarter decline, economists are largely optimistic about a rebound. The substantial import influx seen in January-March is not expected to be repeated in the April-June quarter, suggesting it will not continue to weigh down GDP. According to a survey of forecasters by the data firm FactSet, economists are projecting a bounce back to 3% growth in the second quarter. This report was the Commerce Department's third and final assessment of first-quarter growth, with the initial look at April-June GDP figures anticipated by July 30.