When, during the first three months of 2025, the U.S. economy contracted, panic set in over an impending recession. These changes, procedures and rules coincide with newly reelected President Donald Trump’s second term. According to the Commerce Department’s advance report, the Gross Domestic Product (GDP) shrank by 0.3% from January through March at an annualized rate. This decrease indicates a notable shift in economic dynamism.
This contraction comes amid ongoing uncertainties surrounding trade policies, as President Trump continues to wage a potentially costly trade war. The uncertainty around these policies seems to be putting a real damper on business investments and consumer confidence. Despite the contraction, private domestic investment proved resilient, increasing by 21.9% year-over-year during the same period.
The Commerce Department’s advance report, which is seasonally-adjusted and inflation-adjusted, pointed to imports as the primary driver of the disappointing GDP reading. Imports increased by 41.3% for the quarter, adding over 5 percentage points to the total drop in GDP. Among them, goods imports were up a stunning 50.9%, showing how much international trade has been turned on its head by the pandemic.
Imports showed robust growth, increasing by 3.5%. One of the most important indicators of consumer spending—personal consumption expenditures—rose by 1.8%. Even with this increase, that increase is the slowest quarterly increase since Q2 2023. This slow down comes on the heels of a strong 4% increase in personal consumption expenditures in the last quarter.
Many economists and policymakers are running alarm bells with the contraction in GDP. It’s important to note that the net picture is still likely to be good overall. There is room for rebound in future quarters with the overall strong growth in private domestic investment to build off of.