Due to weak consumer spending and imports, the U.S. economy contracted at an annualized rate of 0.2% in the first quarter, which was worse than expected. This figure was slightly revised up from the previously announced initial value (a contraction of 0.3%), but it still indicates that the U.S. economy faced a contraction at the beginning of the year.
On Thursday, according to the second revision data released by the U.S. Department of Commerce's Bureau of Economic Analysis:
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The annualized quarter-on-quarter revision of the U.S. real GDP for the first quarter is -0.2%, expected -0.3%, initial value -0.3%;
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The annualized quarter-on-quarter revision of the U.S. core Personal Consumption Expenditures (PCE) price index for the first quarter is 3.4%, expected 3.5%, initial value 3.5%.
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The initial value released at the end of April showed that the U.S. economy declined by 0.3% in the first quarter, marking the first contraction since 2022, influenced by a surge in pre-tariff imports and weak consumer spending, indicating the initial effects of Trump's tariff policy.
The upward revision of this GDP data is partly due to stronger business investment (growth of 10.3%, higher than the initial value of 9.8%) and an increase in inventory accumulation. Additionally, the drag from federal government spending was also smaller than initially reported.
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<h2>Consumer Spending Significantly Revised Downward, Trade Deficit Hits Record High</h2>
As the main engine of economic growth, consumer spending grew only 1.2% in the first quarter, far below the previous expectation of 1.8%, marking the weakest growth in nearly two years. The main reason for this was a decrease in demand for automobiles, along with a decline in spending on services such as healthcare and insurance, reflecting weak underlying demand.
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The drag from net exports on GDP reached 4.9 percentage points, the largest recorded drag, slightly higher than the initial estimate. This was mainly due to U.S. companies importing a large volume of goods in advance to avoid potential tariffs that Trump might implement, leading to a significant increase in imports by 42.6%, surpassing the previous estimate of 41.3%.
Ironically, Trump claimed that his trade policy would stimulate long-term economic growth by revitalizing domestic manufacturing, boosting employment, and lowering the prices of U.S. manufactured goods. However, the reality is that the surge in imports triggered by tariff threats has become a major driver of economic contraction
Despite the White House subsequently retracting or delaying some harsher tariff measures, and the U.S. trade court blocking the implementation of most tariffs, the current tariff levels remain significantly higher than those before Trump took office.
<h2>Corporate Profits Experience Largest Decline Since 2020, Potential Demand Weakens</h2>
Another key indicator of economic activity—Gross Domestic Income (GDI) also fell by 0.2%, marking the first decline since the end of 2022. Corporate profits plummeted by 2.9%, the largest drop since 2020, following a growth of 5.4% in the fourth quarter.
Many companies, including the world's largest retailer Walmart, have warned that consumers will soon see price increases. This indicates that businesses are facing significant cost pressures, which will ultimately be passed on to consumers.
Data released on Thursday also showed that the potential demand in the U.S. economy for the first quarter was weaker than initially expected. Considered an important indicator of economic health by economists—“domestic private final sales,” excluding inventory and government purchases, grew by only 2.5%, the lowest growth rate in nearly two years.
<h2>Uncertain Inflation Outlook, Fed in a Dilemma</h2>
The GDP report indicates that the Fed's preferred inflation measure—the personal consumption expenditures price index excluding food and energy rose by 3.4% at the beginning of the year, slightly down from the initial estimate. The April PCE data, set to be released on Friday, will provide more clues about actual consumer spending and wage growth at the start of the second quarter.
Although recent reports show that inflation is moderating, Fed officials remain vigilant about the potential resurgence of price pressures. In last night's meeting minutes, Fed policymakers noted that the uncertainty surrounding the economic outlook is “exceptionally high,” reiterating their ability to wait for clearer economic and inflation prospects before taking action; “almost all” mentioned the risk that inflation could be more persistent.
Forecasters generally expect a rebound in GDP in the second quarter, as higher tariffs will suppress imports, and goods that have already been imported will accumulate into larger inventories, supporting growth.
However, how Trump's trade, immigration, and tax policies will affect consumer and business spending in the long run remains a focal point for economists and policymakers.
<h2>Market Reaction</h2>
Following the release of U.S. economic data, U.S. Treasury yields fell briefly, with the 30-year and 10-year Treasury yields both dropping by over 1 basis point, standing at 4.965% and 4.469%, respectively.
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Due to the drag from consumer spending and imports, the U.S. economy contracted at an annual rate of 0.2% in the first quarter, which was below expectations. This figure is slightly revised upward from the previously announced initial value (a contraction of 0.3%), but it still indicates that the U.S. economy faced a contraction at the beginning of the year. The upward revision was partly due to stronger business investment and an increase in inventory accumulation

- In the first quarter, the U.S. economy contracted by 0.2% annually, slightly better than the initial estimate of a 0.3% decline, primarily due to weak consumer spending and increased imports.  
- Consumer spending growth was only 1.2%, the weakest in nearly two years, while net exports negatively impacted GDP by 4.9 percentage points, driven by a 42.6% surge in imports.  
- Despite expectations of a rebound in the second quarter, uncertainties surrounding the long-term effects of trade policies on consumer and business spending remain a concern for economists and policymakers.

The U.S. GDP for the first quarter was slightly revised to -0.2%, and the PCE price index was revised down to 3.4%