The meltdown over President Trump’s tariff back-and-forth isn’t just relegated to the stock market anymore. Now, macro data proves what beauticians and nightclubbers already knew: The US economy really is contracting.
Today, the Commerce Department reported that gross domestic product (GDP) dropped 0.3% in the first quarter of 2025, far below the 0.4% increase economists projected. That’s a steep decline from Q4’s 2.4% growth, and marks the first time GDP has turned negative since all the way back in 2022.
As big box retailers warned us, shoppers aren’t feeling spendy but were still willing to open their wallets before tariffs hit. Consumer spending, which accounts for roughly 70% of the economy, rose 1.8% in Q1—its slowest increase since mid-2023, but far from a catastrophic downturn.
Companies were also in a hurry to get ahead of tariffs: Imports jumped 41.3% for the quarter, while exports rose only 1.8%. That trade imbalance, combined with a cut in federal spending from Musk’s DOGE efforts, weighed on GDP, according to the Commerce Department.
But if this is how the numbers look now, just wait until the full range of tariffs really hits.
“We are not overly concerned about the negative GDP print. After all, the economy expanded 2.5% in 2022 as a whole despite the decline in 1Q22. What is more concerning is the potential impact of tariffs, which is likely to cause a more substantial economic slowdown in the second half of 2025,” explained Senior US Economist at UBS Brian Rose in a note today.
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So how did the White House address news of an economic slowdown? “This will take a while has NOTHING TO DO WITH TARIFFS, only that he [former President Biden] left us what bad numbers,” Trump posted on Truth Social. Meanwhile, top trade advisor Peter Navarro called the GDP contraction, “The best negative print I have ever seen in my life.”
Inflation is sizzling…sort of
Today’s GDP report also noted that the PCE price index accelerated by 3.6% in the quarter, up from 2.4% in Q4. Core PCE, which excludes volatile food and energy prices, rose 3.5% in Q1, up from 2.6% last quarter.
But that wasn’t the only inflation reading investors had to handle today. The March PCE price index reading revealed inflation rose 2.3% year over year, slightly higher than the 2.1% economists expected. But the month over month number—and monthly core PCE—remained flat. That was below the 0.4% monthly increase in February.
PCE was a bright spot today among a sea of negative economic data points. On any other day, that reading would be interpreted as great news—after all, the numbers show inflation slowing nearly to the Fed’s stated 2% goal.
But with consumers increasingly anxious about the economy and businesses raising giant question marks during earnings calls, everyone is too busy waiting for the tariff tidal wave to celebrate.—LB