Q1 GDP drops 0.3%, first contraction in 3 years

Mostly because of a huge jump in imports.

I mean...huge.

-5% GDP change just because of the imports.

The decline was driven by a large surge in imports, which are a subtraction in the calculation of GDP. Imports surged at an annualized rate of 41.3% in the first quarter as companies front-loaded orders ahead of anticipated tariffs from the Trump administration. The surge in imports was good for a -5% contribution to the GDP calculation in the first quarter.

Other than that, how were things?

Honestly...good.

Final sales of goods to domestic purchasers, another sign of demand in the economy, grew at a 3% annualized rate in the first quarter, above the 2.9% seen in the fourth quarter of 2024.
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The "core" Personal Consumption Expenditures index, which excludes the volatile food and energy categories, grew by 3.5% in the first quarter, above estimates for 3.2% and above the 2.6% seen in the prior quarter.

And, remember, this is all happening while inflation is crashing to the point of touching on deflation. From a couple of weeks ago:

U.S. consumer prices fall for first time in almost three years

U.S. consumer prices dipped in March, defying predictions that Trump's proposed tariffs would trigger higher inflation. The decline in the Consumer Price Index marks the first monthly drop in nearly three years--and only the second since inflation spiked under former President Biden.

Key Details:

March's 0.1% decline in overall prices came as a surprise to economists, who had expected a 0.1% increase. Core prices--excluding food and energy--rose by just 0.1%, well below the 0.3% that had been forecast.

Which means that consumer spending is increasing...while prices are decreasing. The increase isn't because of inflation. Weird, huh?

I can't find mention of government spending in that first Yahoo article, so I searched out and saw this on the actual BEA release:

The decrease in real GDP in the first quarter primarily reflected an increase in imports, which are a subtraction in the calculation of GDP, and a decrease in government spending. These movements were partly offset by increases in investment, consumer spending, and exports. For more information, refer to the "Technical Notes" below.
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The decrease in government spending reflected a decrease in federal government spending (led by defense consumption expenditures) that was partly offset by an increase in state and local government spending (led by compensation of employees).

So, essentially...this is kind of exactly what I imagined early Trump, post-Biden would be. A small contraction in the GDP measures while the economy itself actually does okay while waiting for longer-term effects to settle in.

posted by TheJamesMadison at 12:00 PM

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