The US economy contracted by 0.2% in the first quarter of 2025, a modest improvement from the initial estimate of a 0.3% decline. Quarterly GDP figures were revised following additional data, showing a slightly smaller pullback than first reported.
Consumer spending, which accounts for the majority of economic activity, rose just 1.2%—the slowest pace in nearly two years. Weak household spending reflected cautious sentiment among consumers, who faced higher borrowing costs and elevated prices for many goods and services. That restrained consumer outlays were a key factor holding back overall growth during the quarter.
The largest drag on the economy came from trade. Net exports subtracted a record 5 percentage points from GDP as businesses accelerated imports in anticipation of potential tariffs. Companies increased shipments of goods into the US to avoid higher costs, temporarily boosting import volumes and widening the trade deficit. That surge in imports translated into a notable one-time hit to GDP growth.
Corporate profits fell 2.9% in the quarter, the biggest decline since 2020. Lower earnings partly reflected the trade dynamics and higher input costs for many firms. Earnings weakness was broad-based across several sectors, contributing to the overall slowdown in corporate performance.
Despite the soft start to the year, forecasters generally expect a rebound in the second quarter. As import levels normalize following the pre-tariff rush and supply chains adjust, the negative trade contribution is likely to ease. Coupled with a gradual pickup in consumer spending and stabilizing corporate profits, growth should recover from the first-quarter contraction.
Policymakers and market participants will watch incoming data closely, including consumer confidence, retail sales, and trade figures, to gauge the pace of recovery. If households spend more and the trade imbalance moderates, the economy could return to modest positive growth in the months ahead.