US economy shrinks by 0.3% in first quarter as imports surge ahead of tariffs

The US economy contracted in the first quarter of this year, as President Donald Trump's push to impose heavy tariffs on global trade partners continues to cast uncertainty over the nation's economic outlook.

Gross domestic product (GDP), a measure of total goods and services produced, contracted by 0.3 per cent year on year, when adjusted for seasonality and inflation, during the January-March period, the Bureau of Economic Analysis said in its advance first-quarter estimate on Wednesday.

The US economic performance declined sharply quarter on quarter, after expanding by 2.4 per cent in the September-December period of last year.

It is the first time in three years that economic growth has contracted in the world's largest economy.

Economists had projected US GDP to expand at an annualised rate of 0.8 per cent, according to a FactSet consensus estimate. The Federal Reserve Bank of Atlanta's GDPNow tool estimated the economy to contract by 2.7 per cent.

GDP figures for the last quarter of last year were released before Mr Trump's April 2 universal tariff announcement that rattled global trade and clouded the world economic outlook in the days and weeks that followed.

Mr Trump, who took over an economy that was on solid footing when he came into office, blamed Wednesday's dismal reading on his predecessor Joe Biden.

"Our country will boom, but we have to get rid of the Biden 'overhang'. This will take a while, has nothing to do with tariffs, only that he left us with bad numbers," he wrote on social media.

Consumer and business sentiment in the US also plunged over fears that tariffs could lead to higher costs and slower growth in the domestic market.

Some companies have now paused investments, and consumers are rushing to buy imported products that can further slow GDP growth. Indeed, imports surged 41.3 per cent in the first quarter as consumers and businesses rushed to get ahead of tariffs' effects on prices.

“The decrease in real GDP in the first quarter primarily reflected an increase in imports, which are a subtraction in the calculation of GDP, and a decrease in government spending,” the Bureau of Economic Analysis said.

The agency said those moves were partially offset by increases in investments, consumer spending and exports.

Heightened uncertainty

A wide range of economists have slashed their projections for US economic growth this year amid heightened uncertainty over the trajectory of the economy.

"Some uncertainty will become certain but a dominant downside risk to the outlook is that uncertainty remains extremely high, leading to paralysis in business investment, reducing the hiring rate and ... increasing layoffs," Ryan Sweet, chief US economist at Oxford Economics, said.

While most analysts are raising their recession odds, a Wells Fargo team led by Jay Bryson said Wednesday's report "is not the start of one".

"It reflects instead the sudden change in trade policy that culminated in the biggest drag from net exports in data going back more than a half-century," they wrote.

Inflation accelerated at a 3.6 per cent pace last quarter, compared with an increase of 2.4 per cent from the October to December period. Core inflation, which removes food and energy, rose by 3.5 per cent.

A separate report from the Commerce Department on Wednesday showed inflation rose by 2.3 per cent in March on an annual basis, down from 2.5 per cent in February. Core prices rose by 2.6 per cent, down from 2.8 per cent. Meanwhile, consumer spending rose by 0.7 per cent from February to March.

Wednesday's data come as the Federal Reserve continues to deliberate the effect tariffs will have on the country's economy. Fed officials, for now, appear content to keep interest rates unchanged through at least next month.

However, Fed Chair Jerome Powell has warned tariffs could put the central bank in the difficult position of acting to either tackle inflation or prevent a weakening of economy and the labour market in the country.

Separate data from the US Bureau of Labour Statistics on Tuesday showed employment listings in March fell to their lowest level since September last year, showing some cooling in the labour market.

Figures from last month's unemployment data are due to be released on Friday.

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