The US Department of Commerce’s Bureau of Economic Analysis released an economic forecast report on Wednesday (April 30), showing that due to a significant increase in imports before tariffs took effect and a slowdown in consumer spending, the US economy contracted by 0.3% in the first quarter of this year. As a result of this news, major Wall Street stock indices opened lower on Wednesday.
According to the report released by the Bureau of Economic Analysis on Wednesday, after adjusting for seasonal and inflation factors, the gross domestic product (GDP) for the first quarter declined by 0.3% on an annualized basis. This is the first quarterly decline since the first quarter of 2022.
Economists surveyed by Reuters had previously predicted a 0.3% growth in the US economy in the first quarter. However, this survey was conducted before the US government released some economic data on Tuesday. The data on Tuesday showed that due to a record surge in US imports before the widespread tariffs imposed by the Trump administration took effect, the US merchandise trade deficit soared to historic levels in March, prompting most economists to significantly lower their economic growth forecasts.
The data indicates that US imports in the first quarter surged by 41.3%, with imported goods increasing by 50.9%. Since import data is calculated as a negative in GDP computation, it dragged down economic growth. The import data caused the total GDP reading to decrease by over 5 percentage points.
Considering the trend of a significant increase in imports that may reverse in the coming quarters, it is possible that the US economy may not experience negative growth in the future quarters.
Currently, consumer confidence in the US is near a five-year low, and business confidence has also significantly decreased. Airlines have withdrawn their financial forecasts for 2025, citing uncertainty in non-essential travel expenses due to tariffs. Economists warn that tariffs will increase costs for companies and households.
According to a report by CNBC, Chris Rupkey, Chief Economist at Fwdbonds, stated that part of the reason for the decline in economic growth may be due to people rushing to import goods before tariff increases, but an undeniable point for government policy advisors is that economic growth has vanished.
Despite a slowdown in consumer spending, it is still showing positive growth. In the first quarter, personal consumption expenditure increased by 1.8%, which is the slowest quarter growth rate since the second quarter of 2023, lower than the 4% growth in the previous quarter.
Additionally, domestic private investment surged by 21.9% during this period, mainly due to a 22.5% spike in equipment spending, which could also be due to tariff factors.
Robert Frick, an economist at Navy Federal Credit Union, stated that the impact on GDP in the first quarter was not surprising, primarily due to businesses frantically importing goods to evade tariffs, leading to a deterioration in trade balance. A more convincing figure for future economic expansion is consumer spending, which has increased but at a relatively weaker pace.
“This is concerning, but not alarming, as it could be due to harsh weather and the surge in consumer spending at the end of last year,” Frick said.
The US stock market plummeted on Wednesday morning. The Dow Jones Industrial Average fell by 756 points, a decline of 1.9%. The S&P 500 index dropped by 2.2%, while the Nasdaq Composite Index fell by 2.8%.