Key Points: The US economy unexpectedly contracted by 0.3% in the first quarter of 2025, marking the first quarterly decline in three years and defying economists’ forecasts of modest growth.
-The Commerce Department cited rising imports and decreased government spending. Released during the initial weeks of President Trump’s second term, the news fueled recession concerns and market volatility, with the Dow dropping 700 points.
-While Trump blamed the “Biden Overhang,” economists debated the potential impact of anticipated tariffs. The report also showed persistent inflationary pressure, adding to worries despite administration assurances against a recession.
Trump Has a Big Problem: A Recession?
The Trump Administration got hit with some bad economic data Wednesday, with the news from the Commerce Department’s U.S. Bureau of Economic Analysis that the real gross domestic product (GDP) contracted in the first quarter, by 0.3 percent.
The BEA said in its report that the drop “primarily reflected an increase in imports, which are a subtraction in the calculation of GDP, and a decrease in government spending.”
Per CNN, economists had projected a 0.8 percent growth rate, so the result was below expectations.
It does appear that the circumstances of this particular quarter were one of a kind, due to what CNN described as a “front-running” or purchases to get ahead of Trump’s planned tariffs. But that doesn’t mean a future quarter, with more certainty but higher tariffs, will necessarily come in better.
It marked the first time the economy contracted in an individual quarter in three years. GDP rose every quarter of 2024, including a 2.4 percent increase in the fourth quarter.
Also in the report, the price index for gross domestic purchases increased 3.4 percent, while the personal consumption expenditures (PCE) price index went up by 3.6 percent.
On the news, the stock market dropped, with the Dow slipping 700 points on Wednesday morning.
“Biden Overhang”
Trump came into office slightly less than three weeks into the quarter, so he was president for the majority of those three months. And that time was marked by a great deal of uncertainty and shifts over exactly what would happen with tariffs, and resulting stock market volatility.
Speaking about the new numbers on Wednesday, Trump naturally blamed his predecessor, Joseph Biden.
“This is Biden’s Stock Market, not Trump’s. I didn’t take over until January 20th,” Trump said on Truth Social, possibly unaware that the report that came out Wednesday morning covered January, February and March.
“Tariffs will soon start kicking in, and companies are starting to move into the USA in record numbers. Our Country will boom, but we have to get rid of the Biden ‘Overhang,’ Trump said in the Truth Social post.
“This will take a while, has NOTHING TO DO WITH TARIFFS, only that he left us with bad numbers, but when the boom begins, it will be like no other.”
Is it Recession?
The official definition of a recession is when GDP falls in two consecutive quarters, so after Wednesday’s report, we’re halfway there.
Before the release of the report, Torsten Slok, chief economist of Apollo Global Management, wrote in a note that the likelihood of a recession, which he called a “ Voluntary Trade Reset Recession,” — had reached 90 percent. Slok went on to state that “implementing extremely high tariffs overnight hurts many businesses, particularly small businesses because the tariff must be paid by the business when the imported goods arrive in the US.”
Per Forbes, different banks say different numbers when it comes to recession odds.
JPMorgan Chase sees a 60 percent chance of recession this year, while Goldman Sachs sees it at 45 percent and Morgan Stanley at 40 percent. This was, however, before the report on Wednesday.
For his part, Trump’s National Economic Council director, Kevin Hassett, said this week in a Fox Business interview that he is “100 percent not” expecting a recession.
But beyond economists, a new DDHQ poll found that 82 percent of U.S. voters are concerned about a recession. About half of the respondents to the poll are ‘very concerned,” 32 percent are “somewhat concerned,” and only four percent called themselves “not concerned at all.”
The most recent quarter of decline came in early 2022, which was attributed to inflation, the disruptions caused by Russia’s invasion of Ukraine, and other factors.
However, the economy soon returned to growth, and recession was avoided. The COVID-19 pandemic caused a recession in the U.S. in 2020, although it was brief.
About the Author: Stephen Silver
Stephen Silver is an award-winning journalist, essayist and film critic, and contributor to the Philadelphia Inquirer, the Jewish Telegraphic Agency, Broad Street Review and Splice Today. The co-founder of the Philadelphia Film Critics Circle, Stephen lives in suburban Philadelphia with his wife and two sons. For over a decade, Stephen has authored thousands of articles that focus on politics, technology, and the economy. Follow him on X (formerly Twitter) at @StephenSilver, and subscribe to his Substack newsletter.
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