US Economy Shrinks In Q1 2025, First Since 2022

The United States economy has officially recorded negative growth for the first time in nearly three years. According to preliminary data, the U.S. Gross Domestic Product (GDP) fell by 0.3% in the first quarter of 2025, marking a major shift from previous quarters of modest growth.

What Happened to the US GDP?

The GDP is the most important indicator of a country’s economic health. It measures the value of all goods and services produced. In Q1 2025, the U.S. economy contracted by 0.3% quarter-on-quarter, on an annualized basis. This was below market expectations of +0.3% growth and is the first negative GDP print since Q2 2022.

Key Numbers from the Report:

GDP Growth: -0.3% (expected +0.3%)

Core PCE Inflation: +3.5% (expected +3.1%)

Personal Consumption: +1.8%

Employment Cost Index: +0.9%

US Q1 GDP Breakdown (Contributors/Subtractors):

Consumer Spending: Added +1.21% to GDP (previously +2.70%)

Government Spending: Subtracted -0.25% (down from +0.52% in the advance estimate)

Net Exports (Trade): Dragged GDP down by -4.83% (vs. +0.26% earlier)

Business Inventories: Contributed +2.25% (previously estimated at -0.84%)

Inflation Is Still High

The Core PCE Price Index, which the Federal Reserve uses to track inflation, rose by 3.5% in Q1. This was higher than expected, showing that inflation remains a concern. Even though the economy is slowing, prices are still rising at a fast pace.

What Is Core PCE?

Core PCE (Personal Consumption Expenditures) removes food and energy prices, giving a better idea of long-term inflation trends. A high Core PCE means people are still paying more for everyday goods and services.

Consumers Are Still Spending

Despite the negative GDP, American consumers continued to spend. Personal consumption grew by 1.8%, which means people are still buying goods and services. This shows some strength in household demand.

However, the spending growth was slower compared to previous quarters. If inflation stays high and job growth slows, this trend could weaken further in the coming months.

US Trade Deficit Widens Sharply in March

United States goods trade deficit surged to a record $162 billion in March, jumping $14 billion from the previous month and far exceeding expectations by $17 billion. The dramatic widening was driven by a sharp 5% rise in imports, which reached $343 billion. Notably, consumer goods imports skyrocketed 28% to a record $103 billion, as companies rushed to import ahead of expected tariff hikes.

On the other side, exports showed only modest growth, rising just 1% to $181 billion. The imbalance highlights ongoing pressure on the U.S. trade front, with businesses seemingly accelerating purchases amid growing uncertainty around global trade policy and tariff implementation.

Employment Costs Are Rising

The Employment Cost Index rose by 0.9% during the quarter, in line with expectations. This indicates that wages and benefits are still increasing, keeping the labor market relatively strong for now.

Why Employment Cost Index Matters

When employers pay more in wages and benefits, it can increase spending power. But it can also add to inflation if businesses raise prices to cover these higher costs.

Government Moves: Treasury’s $125B Plan

The U.S. Treasury has announced a $125 billion quarterly bond issuance, which matches Wall Street expectations. The department also said that auction sizes would remain steady for the next several quarters.

In addition, the Treasury is considering improvements to its bond buyback program to help stabilize the bond market and improve liquidity.

What This Means for You

This data shows that the U.S. economy is at a turning point. A shrinking GDP signals slower growth or even the risk of a recession. At the same time, rising inflation and stable job costs mean the Federal Reserve may not cut interest rates anytime soon.

Possible Impacts:

Higher borrowing costs for loans, credit cards, and mortgages

Rising prices for goods and services

Uncertainty in stock markets

Limited rate cuts by the Federal Reserve

Conclusion

The first quarter of 2025 brings a clear warning: the U.S. economy is slowing down. With GDP shrinking and inflation still hot, the road ahead may be challenging for policymakers, businesses, and families alike.

Staying updated on these changes is important for making smart financial and investment decisions.