صدى البلد البلد سبورت قناة صدى البلد صدى البلد جامعات صدى البلد عقارات
Supervisor Elham AbolFateh
Editor in Chief Mohamed Wadie
ads

US Economy Shrinks for First Time since 2022


Wed 30 Apr 2025 | 07:58 PM
Taarek Refaat

The U.S. economy contracted at the start of the year for the first time since 2022 amid a massive surge in imports ahead of the imposition of tariffs and a decline in consumer spending, a first glimpse of the ripple effects of President Donald Trump's trade policy.

Inflation-adjusted gross domestic product (GDP) fell 0.3% year-over-year in the first quarter, well below the average growth of about 3% in the previous two years, according to a preliminary government estimate released Wednesday.

The Bureau of Economic Analysis report showed that net exports reduced GDP by nearly five percentage points.

Consumer spending, which accounts for two-thirds of GDP, rose 1.8%, the weakest rate since mid-2023. Business spending on equipment, a positive point in the report, rose at an annual rate of 22.5%.

                                                                   Actual Realization                          (%) Forecast (%)

GDP                                                                        -0.3                                                 -0.2

Personal Consumption                                      +1.8                                                 +1.2

PCE Price Index, excluding food and energy +3.5                                                  +3.1

GDP data highlights businesses' rush to secure goods ahead of the imposition of hefty tariffs. Many economists expect the higher tariffs to create a supply shock, challenging businesses and dampening demand as prices push cash-strapped Americans to the brink.

Financial analysts now see a near-equal chance of the US economy entering a recession next year. Consumers are also increasingly concerned that tariffs will negatively impact the job market and raise the cost of living.

The latest GDP figures showed imports jumping 41.3% year-on-year, their largest increase in nearly five years. Because these goods and services are not produced in the United States, they are deducted from GDP. Economists expect the sharp widening trade deficit to reverse in the second quarter.

Imported goods typically move to warehouses or directly to display cases. However, the report showed that business inventories contributed 2.25 percentage points to GDP during the quarter, the highest percentage since the end of 2021. These recent excess imports could instead manifest as higher inventories in the coming months, along with a narrowing trade gap, which could support GDP in the second quarter.

Given that GDP data is affected by occasional trade and inventory fluctuations, economists prefer to monitor final sales to domestic private buyers for a clearer picture of demand. This indicator rose at a 3% rate in the first quarter after a 2.9% annual increase at the end of 2024.

Consumer spending growth was driven by a broad-based increase in spending on services and an increase in prices for nondurable goods.

Consumer sentiment has declined sharply in surveys, raising doubts about households' ability to provide sufficient fuel to drive the US economy. Low-income consumers are facing challenges from rising prices, while the wealthy have suffered from a decline in stock prices this year.

Meanwhile, corporate investment in equipment has risen at a 22.5% annual rate. In addition to a significant increase in commercial aircraft shipments months after the end of the Boeing strike, production of information processing equipment and computers has also increased.

Among companies that have recently reported a decline in spending on non-essential goods and sales of big-ticket items are retailer Tractor Supply and home appliance maker Whirlpool. Several executives have pointed to a collapse in consumer confidence and the potential for a more cautious approach to spending.

"It's hard to imagine market conditions more turbulent than what we've experienced over the past two months," Richard Westenberger, chief financial officer and chief operating officer of children's clothing maker Carter's, said on the company's April 25 earnings call.

Meanwhile, the GDP report showed that the closely watched core inflation measure accelerated to 3.5% in the first quarter, its highest rate in a year. Detailed data on inflation and consumer spending for March is due later today.

Uncertainty about the impact of tariffs on inflation and the broader economy could put the Federal Reserve in a difficult position. Policymakers have indicated they will not rush to cut interest rates until they have more clarity on the impact of the White House's policies on the economy.

While the Trump administration imposed a 90-day suspension on some of the higher tariffs announced earlier this month, the country's effective tariff rate is now around 23%, the highest in more than a century, according to Bloomberg Economics. This increases uncertainty about some of the exemptions from previously announced higher tariffs.

The president and his economic advisors view tariffs as a means of stimulating long-term economic growth by reviving the manufacturing sector. Trump also hopes to drive increased export growth, close deficits with U.S. trading partners, increase government revenues, and enhance national security.