US Economy Contracts for First Time Since 2022 on Imports Surge

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“If the blowout on trade was the result of firms pre-buying imported inputs to beat the tariffs, the decay in the trade balance will reverse in Q2. That will generate some GDP growth,” Carl Weinberg, chief economist at High Frequency Economics, said in a note. “However, corrosive uncertainty and higher taxes —tariffs are a tax on imports — will drag GDP growth back into the red by the end of this year.”

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The S&P 500 opened lower and Treasury yields fell. In a social media post, Trump said the US economy will “take a while” to show results of the current policies and blamed the stock market’s performance on his predecessor, Joe Biden.

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Typically, imported merchandise moves into warehouses or directly to storefronts. However, the report showed business inventories contributed 2.25 percentage points to GDP during the quarter, the most since the end of 2021. The recent flood imports may instead show up in higher inventories in coming months, which could also provide a lift to second-quarter GDP.

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Because swings in trade and inventories can sometimes distort overall GDP, economists prefer looking at final sales to private domestic purchasers for a better snapshot of demand. This measure increased at a 3% pace in the first quarter after rising an annualized 2.9% at the end of 2024.

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Growth in consumer spending was driven by a broad-based advance in outlays for services and a pickup in nondurable goods.

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Several surveys of consumer attitudes have plunged, raising doubts about the ability of households to provide much fuel for the economy. Low-income consumers are already facing hardships of high prices, while wealthier individuals have been set back by this year’s drop in stock prices.

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What Bloomberg Economics Says…

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“Final sales to domestic purchases — which exclude trade and inventories — fared better, but that demand was also pulled forward, leaving less room for growth ahead.”

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— Eliza Winger.

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Meanwhile, business investment in equipment advanced at a 22.5% annualized rate. In addition to a surge in commercial aircraft shipments months after the end of a strike at Boeing Co., output of information processing equipment and computers also jumped.

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Economists also see tariffs weighing on capital expenditures, and corporations have acknowledged during the current earnings season that the road ahead for consumers will be challenging.

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Retailer Tractor Supply Co. and appliance-maker Whirlpool Corp. are among companies noting that discretionary spending and sales of big-ticket goods have softened more recently. Many executives mentioned the collapse in consumer confidence and the potential for a more-guarded approach to spending.

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“It’s difficult to imagine a more tumultuous market backdrop than we’ve experienced over the last couple of months,” Richard Westenberger, chief financial officer and chief operating officer at baby-apparel maker Carter’s Inc., said on the company’s April 25 earnings call.