US economy shrinks 0.2%, trade hit worse than first estimate
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The news: The US economy shrank at a 0.2% annualised pace in the first quarter, with weaker consumer spending and a larger impact from trade than initially reported in April, the Bureau of Economic Analysis said.
The context: The contraction stemmed from a jump in imports as businesses raced to beat Trump’s tariffs, alongside softer consumer spending and reduced federal government spending. Legal challenges and shifting trade policies have added more uncertainty.
The updated data, the second of three readings, comes after a US trade court blocked most tariffs, but the economic outlook is still murky and companies like Walmart have cautioned that consumers might soon face higher prices.
The numbers: The economy’s primary growth engine (consumer spending) advanced 1.2%, down from an initial estimate of 1.8% and the weakest pace in almost two years. Corporate profits fell USD118.1 billion ($183.1 billion), the most since 2020.
Net exports subtracted nearly 5 percentage points from GDP, slightly more than the first projection and the largest on record. Imports surged 42.6% as businesses tried to get ahead of Trump’s tariffs.
The Fed’s preferred inflation metric, the PCE price index excluding food and energy, rose 3.4%. A US trade court blocked most of Trump’s tariffs, but businesses, including Walmart, have warned of likely consumer price hikes.
The sources: Bureau of Economic Analysis, Bloomberg
