The U.S. economy contracted for the first time in three years at the beginning of 2025 as a surge of imports ahead of Trump’s tariffs pulled GDP negative in the first quarter.
The Details: Gross domestic product declined by 0.3% on an annualized basis during the January–March period. The reading fell short of analyst expectations, which had forecast a modest slowdown to 0.4% growth.
On the jobs front, Automatic Data Processing Inc. reported that private employers added only 62,000 jobs in April, well below economists’ expectations of 108,000.
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Expert Ideas: Most economists agree that first-quarter GDP was “clouded” by a rush of imports as businesses increased inventories ahead of the implementation of Trump’s tariff policies.
Jason Furman, professor of economics at Harvard University, highlighted that while GDP contracted, core GDP was up 3% at an annualized rate.
Bill Adams, chief economist for Comerica Bank, cautioned that the first quarter GDP “says less than usual about the economy’s trajectory” and pointed instead to April’s ADP employment report as a more accurate barometer of economic conditions.
April’s ADP private payrolls data came in well-below expectations and was the weakest monthly increase since July 2024.
“Between the GDP report, April’s ADP report, and a pullback in business and consumer surveys last month, the economy is losing momentum and risks to the economic outlook are increasing,” Adams said.
Jeffrey Roach, chief economist for LPL Financial, said the GDP report builds anticipation ahead of Friday’s payroll numbers as the “trajectory for growth hinges on the health of the labor market.”
Roach expressed the belief that the economy and U.S. consumer remain strong and that most of the economic turbulence is related to Trump’s tariff policies.
“A successful resolution to global trade policy would likely remove most of the volatility and uncertainty currently experienced by businesses and consumers,” Roach said.
Markets React: All three major indexes are in the red in Wednesday’s midday trading as they attempt to recover from steep declines following the GDP and ADP employment reports. The S&P 500, tracked by the SPDR S&P 500 ETF (NYSE:SPY), was down 0.55% and the Nasdaq 100, tracked by the Invesco QQQ Trust (NASDAQ:QQQ), was down 1.29%.
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