The US economy unexpectedly shrunk at the start of 2025. But that may not be the whole picture.  

America’s gross domestic product (GDP) — a measure of all the goods and services produced — contracted by 0.3 percent during the first quarter of 2025. 

The GDP rating, calculated by the US Bureau of Economic Analysis, reached over 2.4 percent last quarter. 

Bankers thought the GDP would read at 0.4 percent, which would have been the slowest rate in years. 

Instead of merely slowing, US production slipped into negative territory, weighed down by escalating trade tensions, policy whiplash, and recession fears. 

And markets are reacting negatively to the news: Nasdaq, S&P 500, and Dow Jones are all trading in the red. 

The tech-heavy Nasdaq is the hardest-hit so far, trading down 1.3 percent on Wednesday morning.

But the measure may not realize a huge shift in American spending. 

The contraction doesn’t reflect the full fallout from President Trump’s sweeping ‘Liberation Day’ tariffs, which were rolled out in early April and partially reversed a week later. 

At the same time, US consumers have been racing to buy foreign-made goods ahead of global 10 percent tariffs, which are expected to drive up prices and squeeze household budgets. 

But purchases of imported items don’t boost GDP, meaning some recent spending isn’t reflected in the numbers. 

‘Imports were an enormous drag on Q1 GDP,’ Ryan Sweet, the chief US economist at Oxford Economics, said. 

‘GDP is backward-looking but there was some good news as real final sales to private domestic purchasers, the engine of the economy, posted a decent gain.’

Shoppers have flooded car dealerships, tech stores, and furniture retailers to scoop up lower cost products before their prices rise. 

Multiple companies are reporting banner sales numbers from the same quarter this week, especially on their foreign-made products. 

Dozens of companies have also removed their sales forecasts, saying despite their strong sales quarters, there is a distinct possibility the US could plummet into a recession. 

The S&P initially reacted to the GDP hit with a nearly two percent drop

US GDP shrunk in the first quarter of the year - but it may be a product of US shoppers spending more on imported goods

US GDP shrunk in the first quarter of the year – but it may be a product of US shoppers spending more on imported goods 

As US production dips and inflation remains a key pinchpoint for consumers, bankers at the Fed have a difficult task ahead

As US production dips and inflation remains a key pinchpoint for consumers, bankers at the Fed have a difficult task ahead

Sweet said the US is not currently in a recession, but ‘risks are high between today and early next year.’ 

Several bankers have agreed that a recession is becoming increasingly likely. 

Earlier this month, analysts at JPMorgan Chase increased their recession likelihood to 60 percent. 

In March, Deutsche Bank put the chance of a recession at 43 percent.

Sweet says the new GDP numbers will put even more pressure on Federal Bank Chair Jerome Powell. 

Powell has steadily increased US interest rates to attempt to combat inflation. He set a goal of getting price increases to 2 percent after it spiked over 9 percent in 2022. 

The inflation rate has slowed down since he slammed down increased interest on the US economy. But it hasn’t yet reached his goal. 

If US production continues its downward rate while inflation remains high, it will put the Fed’s monetary policy in the crosshairs of two opposite forces. 

Shoppers are still dealing with inflationary pressures - they're expected to grow by the end of the year with the launch of new tariffs

Shoppers are still dealing with inflationary pressures – they’re expected to grow by the end of the year with the launch of new tariffs 

President Trump has launched historic tariffs on other countries - the impact on American wallets will be unprecedented

President Trump has launched historic tariffs on other countries – the impact on American wallets will be unprecedented

Lowering interest rates could lead to higher inflation, but increase production. Keeping interest rates at the same level could slow inflation, but further hurt US production. 

Meanwhile, in a post on Truth Social, President Trump shirked responsibility for the GDP reading. 

‘This is Biden’s Stock Market, not Trump’s,’ he claimed in a post on Truth Social.

‘This will take a while, has NOTHING TO DO WITH TARIFFS, only that he left us with bad numbers, but when the boom begins, it will be like no other. BE PATIENT!!!’

But other analysts put some of Trump’s policies squarely at blame for the negative results. 

‘A decline in government consumption also weighed on GDP, following 10 straight quarters of positive figure,’ Bret Kenwell, a US investment analyst at eToro pointed out. 

‘Given the Administration’s approach to the federal government via DOGE, a decline in government consumption was expected.’ 

***
Read more at DailyMail.co.uk