U.S. economy shrank in first quarter; first drop in three years

FILE-Customers check out at a department store in New York City. U.S.

in 2025. (Photo by Liao Pan/China News Service/VCG via Getty Images) U.S.



economic growth experienced a decline from January through March. Consumer spending fell slightly as well as government spending. Economists believe President Donald Trump’s tariffs could impact the economy in the second half of 2025.

The U.S. economy shrank at a 0.

3% annual pace from January through March, marking the first drop in three years. Why you should care: The economy was slowed by a rise in imports as companies in the U.S.

attempted to bring in foreign goods before President Donald Trump imposed massive tariffs. The Associated Press reported that the January-March drop in gross domestic product— the nation's output of goods and services — reversed a 2.4% gain in the last three months of 2024.

RELATED: What companies are saying about tariff price hikes: Full list Separately, imports rose at a 41% rate and shaved 5 percentage points off first-quarter growth. And consumer spending also slowed significantly — 1.8% growth from 4% in October-December in 2024.

Federal government spending also dipped 5.1% in the first quarter. Additionally, business investment increased at a 21.

9% rate as companies put money into equipment. According to the AP, a category within the Gross Domestic Product data that examines the economy’s strength rose at a healthy 3% annual rate from January through March, up from 2.9% in the fourth quarter of 2024.

The AP noted that the category includes consumer spending and private investment but excludes volatile items like exports, inventories, and government spending. Dig deeper: Economists tell the Associated Press that President Donald Trump's import taxes will hurt growth in the second half of 2025 and that recession risks are rising. Trump inherited a stable economy that had been steady despite high interest rates imposed by the Federal Reserve to combat inflation.

Trump’s trade policies — including 145% tariffs on China — have affected businesses and threatened to raise prices and hurt consumers. RELATED: Trump's 25% tariffs on all steel and aluminum imports take effect Citing payroll provider ADP, the AP noted that companies added 62,000 jobs in April, about half of what was projected, and down from 147,000 in March. This might indicate that businesses may be taking a more cautious approach to hiring with the uncertainty over tariffs.

The Source: Information for this story was provided by the Associated Press, which cites economists about tariffs and Gross Domestic Product data related to the economy. This story was reported from Washington, D.C.

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