US economy contracted by 0.5% in the first quarter of the year, falling below expectations.

The U.S. economy experienced a 0.5% contraction in the first quarter of the year, which was a decline from previous estimates as President Donald Trump’s trade tensions had a negative impact on business activities, according to the latest report from the Commerce Department. This unexpected downgrade in projected growth was primarily influenced by a surge in imports as companies and households rushed to purchase foreign goods before potential tariffs were imposed. The initial estimate had suggested a 0.2% decline in GDP for the first quarter, but the actual figure turned out to be worse than expected.

Economists had not predicted any changes in the final estimate provided by the Commerce Department. This drop in economic output reversed the growth trend observed in the previous quarter, marking the first time in three years that the economy had contracted. Imports, which expanded by 37.9%, made a significant contribution to the decline in GDP by pulling down the growth rate by almost 4.7 percentage points. Additionally, consumer spending slowed down considerably, expanding by only 0.5% compared to a more robust 4% in the previous quarter.

Consumers have become apprehensive following the implementation of tariffs on imports by the Trump administration, leading to a downturn in consumer confidence. The Conference Board’s recent report highlighted a decline in Americans’ perception of the economy in June, with key indicators showing a negative trend. The consumer confidence index fell to 93, down by 5.4 points from the previous month, signaling a troubling trend in consumers’ expectations for their income, business conditions, and job market outlook.

Former Federal Reserve economist Claudia Sahm expressed concern over the downward revision in consumer spending, suggesting that it could be a warning sign of consumer pessimism and uncertainty. The underlying strength of the economy, as measured by a specific category within the GDP data, expanded at a 1.9% annual rate in the first quarter. However, this figure was lower than the growth rate observed in the previous quarter and the Commerce Department’s earlier estimate.

Federal government spending experienced a significant decline of 4.6% in the first quarter, the largest drop since 2022, indicating challenges in government expenditure. Trade deficits, which reduce GDP, were also influenced by Trump’s policies disrupting trade practices. However, economists are optimistic about a rebound in GDP growth for the April-June quarter, with forecasts suggesting a 3% growth rate. The impact of imports on GDP is expected to decrease in the upcoming quarter, leading to a more stable economic performance.

The upcoming report on April-June GDP growth is scheduled for release on July 30, providing further insights into the trajectory of the U.S. economy in the second quarter of the year. Despite the challenges faced in the first quarter, there are indications of a potential recovery in economic growth in the coming months.