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Home News Business Economy

U.S. Economy Contracts in First Quarter as Imports Surge, Spending Slows

June 26, 2025
in Economy, News
U.S. Economy Contracts in First Quarter as Imports Surge, Spending Slows
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The U.S. economy shrank in the first three months of 2025, with the latest government data showing a deeper contraction than previously estimated as consumer spending lost momentum and a surge in imports widened the trade gap.

Gross domestic product declined at an annual rate of 0.5 percent in the first quarter, the Commerce Department said Thursday, marking the economy’s first contraction since early 2023. The figure was revised down from the previous estimate of a 0.2 percent decline and stood in sharp contrast to the 2.4 percent growth recorded in the fourth quarter of last year.

The pullback was driven largely by an increase in imports, which subtract from the GDP calculation, along with declines in government spending and weaker-than-expected consumer expenditures. Real exports were also revised lower.

The report also offered some insight into a recurring puzzle in recent quarters: the so-called “imports mystery.” Imports subtracted 4.61 percentage points from GDP, following a massive 37.9 percent annualized jump in imports. Typically, such a surge in imports should be reflected in rising inventories or stronger consumption. Earlier reports did not seem to reflect this, creating a puzzle about where the imports wound up. The latest report shows inventory accumulation was robust, contributing +2.59 percentage points to growth—suggesting that much of the import surge did show up in stockpiles. Even so, the scale of the import drag relative to domestic demand has raised questions about whether measurement issues or overstocking behavior might be distorting the figures.

The update reflected downward revisions to services spending—particularly in recreation, transportation, and international travel—based on newly available data from the Census Bureau and international accounts. Spending on goods barely grew, while investment in structures and equipment picked up. Recreation spending subtracted 0.14 percent from GDP growth, the most since the pandemic-afflicted second quarter of 2020.

Meanwhile, the price index for gross domestic purchases rose at a 3.4 percent annual pace, a touch higher than earlier estimates, suggesting inflation pressures remained firmer than previously thought. The core personal consumption expenditures price index, which excludes food and energy, was also revised up slightly to 3.5 percent.

Corporate profits fell during the quarter but by less than previously reported. Profits from current production were down $90.6 billion, an upward revision of $27.5 billion.

A separate measure of economic activity, real gross domestic income, rose by 0.2 percent in the first quarter, reversing the earlier estimate of a decline. The average of GDP and GDI—a metric some economists view as a more reliable signal of underlying economic momentum—was down 0.1 percent.

From an industry perspective, output from goods-producing sectors contracted 2.8 percent, while services slipped 0.3 percent. Government-related activity, however, grew 2.0 percent, buoyed by state and local expenditures.

The economy’s underlying demand picture was somewhat more resilient than the headline figure suggested. Final sales to private domestic purchasers, which strips out trade and government, grew at a 1.9 percent pace, though this too was revised down from the earlier 2.5 percent estimate.

The Commerce Department will release its initial estimate of second-quarter GDP on July 30.

The post U.S. Economy Contracts in First Quarter as Imports Surge, Spending Slows appeared first on Breitbart.

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