U.S. economy faces contraction as imports surge
The American economy contracted by 0.3% on an annualized basis in the first quarter of 2025, marking a stark contrast to the end of last year. This is the first slowdown since the pandemic, mainly due to an increase in imports and a decrease in government spending, according to data released on Wednesday.
According to preliminary estimates published by the Bureau of Economic Analysis (BEA), the U.S. gross domestic product recorded its first decline in several years. The main reason for this weakening was increased imports, which negatively affect GDP calculations, and a reduction in government spending. These adverse factors were partially offset by an increase in investments, consumer spending, and exports.
Compared to the fourth quarter of 2024, when economic growth was 2.4%, the current data indicate a significant slowdown in the U.S. economy. The decline in the first quarter of 2025 reflects a reversal of the upward trend in imports and a decrease in government spending, with only partial compensation from a revival in the investment and export sectors.
The indicator of real final sales to private domestic purchasers, which is the sum of consumer spending and private investment, increased by 3.0% in the first quarter of this year compared to a growth of 2.9% in the last quarter of 2024. This positive signal indicates the continued strength of domestic demand despite the overall slowdown.
Price increases and inflationary pressure
The gross domestic purchases price index increased by 3.4% in the first quarter, accelerating from a 2.2% increase in the previous quarter. This data indicates a renewed intensification of inflationary pressure in the U.S. economy after a period of relative stability.
The Personal Consumption Expenditures (PCE) price index rose by 3.6%, compared to an increase of 2.4% in the previous quarter. The core PCE index, which excludes food and energy prices, increased by 3.5%, against a 2.6% rise in the fourth quarter of 2024. Both these indicators show a clear increase in inflation in the first three months of 2025.
It's worth noting that GDP, expressed in current dollars, grew by 3.5% in the first quarter, confirming that nominal economic growth remains positive but is largely driven by higher prices rather than a real increase in production and services.
Main components of GDP change
In a detailed analysis of the components contributing to the GDP decrease, it can be observed that the growth in imports was mainly in consumer goods, excluding food and automotive products. There was a notable increase in imports of medical, dental, and pharmaceutical preparations, including vitamins, as well as in capital goods, excluding automotive products, where computers, peripheral devices, and parts dominated.
Regarding the decline in government spending, the main cause was the reduction in federal expenditures, especially defense spending. This was partially offset by an increase in state and local spending, mainly in employee compensation.
The largest contribution to the growth in investments came from private inventory investments, particularly in wholesale trade, where the drug and hygiene products sector stood out. Estimates concerning private inventory investments were mainly based on Census Bureau data on the book value of inventories and the BEA's March adjustment, considering a significant increase in imports.
The increase in consumer spending reflected the rise in both services and goods sectors. In the case of services, growth was widespread, dominated by healthcare and housing and utilities expenditures. Regarding goods, the increase in spending on nondurable goods was partially offset by a decrease in spending on durable goods.
