In the first quarter of this year (January to March), the U.S. economy contracted for the first time in three years. The effects of the tariff war initiated by President Donald Trump against the world seem to have returned.
On the 30th (local time), the U.S. Department of Commerce announced that the U.S. gross domestic product (GDP) growth rate (preliminary estimate) for the first quarter decreased by 0.3% on an annualized basis compared to the previous quarter. This is the first time that the quarterly growth rate has recorded a 'minus (-)' since the first quarter of 2022 (-1.0%).
This growth rate not only fell short of the fourth quarter of last year (2.4%), but also significantly missed market expectations. Earlier, Bloomberg News had anticipated that the growth rate for the first quarter would increase by 0.4% on an annualized basis compared to the previous quarter.
The main reason for the decline in real GDP in the first quarter was the increase in imports. According to the U.S. Bureau of Economic Analysis (BEA), imports surged by 41.3% this quarter, far exceeding the export growth rate (1.8%). Net exports (exports - imports) plummeted by -4.83% compared to the previous quarter, marking the largest decline on record.
GDP consists of private consumption, investment, government expenditure, and net exports, and an increase in imports negatively impacts economic growth.
Government expenditure also switched to a decrease, contributing to the slowdown in growth. In the first quarter, government consumption expenditure and gross investment fell by 1.4%, marking the first decline since the second quarter of 2022 (-1.5%). Federal government expenditure led the decline with a 5.1% decrease.
Fortunately, consumer expenditure maintained an upward trend, preventing a further drop in growth. Consumer expenditure in the first quarter rose by 1.8%, exceeding market expectations (1.2%). The private domestic final sales, which reflect the fundamental trends of U.S. economic demand (sum of consumption expenditure and private fixed investment), increased by 3.0% in the first quarter, expanding from the growth rate of 2.9% in the fourth quarter of last year.
Prices surged more sharply. The domestic total expenditure price index, which rose by 2.2% in the fourth quarter of last year, increased by 3.4% in the first quarter of this year. During the same period, the personal consumption expenditure (PCE) price index rose from 2.4% to 3.6%, and the core PCE price index, excluding food and energy, increased from 2.6% to 3.5%.
Meanwhile, President Trump blamed the dismal economic report for the first quarter on former President Joe Biden. He stated in a post on his social media platform Truth Social, "Only Biden left behind the bad numbers," adding, "Once the growth momentum begins, it will reach unprecedented levels."