US Economy Contracts 0.5% in Q1

The U.S. economy shrank by 0.5% in the first quarter of 2025, according to the final GDP reading released Thursday by the Bureau of Economic Analysis (BEA). 

The revised figure confirms a deeper contraction than previously estimated, raising concerns about the resilience of the post-pandemic recovery.

Unexpected GDP Revision Signals Growing Strain

The latest figures mark a significant downgrade from earlier readings, which showed a 0.3% contraction initially, later revised to 0.2%. The final -0.5% figure suggests broader weakness in economic activity than many analysts had anticipated.

Consumers Keep Spending – But It May Not Be Enough

Despite the contraction, consumer activity remains robust. The Personal Consumption Expenditures (PCE) index, a key measure of household spending, rose 3.7% from January to March—slightly higher than the previous 3.6% estimate. The core PCE index, which excludes volatile food and energy prices, also rose to 3.5%, up from 3.4%.

“This is a strange moment in the economy—consumer spending is holding up well, but business investment is slowing, and government spending is cooling off,” said Thomas Wright, Chief Economist at New York Investment Bank.

Labor Market Shows Resilience Amid Uncertainty

Separate data released Thursday showed initial jobless claims fell to 236,000 last week, beating expectations of 243,000 and indicating ongoing strength in the labor market.

Meanwhile, durable goods orders surged by 16.4%, far exceeding forecasts of an 8.5% increase and reversing a previous 6.3% decline—another sign that certain sectors are still expanding.

Fed Cuts Growth Outlook

Earlier this week, the Federal Reserve revised its U.S. growth forecast downward to 1.4% for 2025, citing persistent inflationary pressures and signs of deceleration across key sectors.

Outlook: Recession or Realignment?

While a single quarter of negative growth does not constitute a recession, the deeper contraction raises questions about what’s ahead. If consumer spending begins to falter or job growth slows further, the U.S. may be on the brink of a more pronounced economic downturn.

“The data is sending mixed signals,” Wright added. “We’re not in a crisis yet—but the foundation is starting to crack.”