US Economy Shrinks Faster than First Estimated in Early 2025

Gross domestic product decreased at a downwardly revised 0.5 per cent annualized rate last quarter, the Commerce Department’s Bureau of Economic Analysis (BEA) said in its third estimate of GDP on Thursday. It was previously reported to have dropped at a 0.2 per cent pace. The revision reflected a sharp downgrade to consumer spending, which is now estimated to have increased at only a 0.5 per cent pace instead of previously reported 1.2 per cent rate.

The economy grew at a 2.4 per cent rate in the fourth quarter. Domestic demand growth was slashed to a 1.9 per cent rate from the previously reported 2.5 per cent pace.

A flood of imports as businesses rushed to bring in goods before President Donald Trump’s sweeping tariffs kicked in accounted for the bulk of the decrease in GDP. Consumer spending also slowed as the boost from pre-emptive buying of goods, especially motor vehicles, ahead of the import duties faded.

The flow of imports has since subsided, positioning GDP for a sharp rebound in the second quarter. The Atlanta Federal Reserve is forecasting GDP accelerating at a 3.4 per cent rate this quarter. Given the gyrations from imports, economists cautioned against interpreting the anticipated rebound in GDP as a sign of economic strength. Data on retail sales, the housing and labor markets have suggested economic activity is softening.

“The difficulty of accurately capturing the extraordinary foreign-trade and inventory gymnastics that companies undertook to avoid US tariffs created serious measurement challenges that will linger for some time to come,” said Lou Crandall, chief economist at Wrightson ICAP.

When measured from the income side, the economy grew at an upwardly revised 0.2 per cent rate in the first quarter. Gross domestic income (GDI) was initially estimated to have declined at a 0.2 per cent pace. That reflected an upward revision to corporate profits. Profits from current production with inventory valuation and capital consumption adjustments decreased $90.6 billion in the first quarter, an upward revision of $27.5 billion.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, dropped at an upwardly revised 0.1 per cent rate.

Source: Reuters