• Final GDP revised down to -0.5%, worse than preliminary -0.2% estimate.
  • Inflation pressures persist with PCE rising to +3.7%, while consumer spending slows sharply to +0.5%.
  • Trade disruptions and tariff uncertainty weigh on growth, with imports surging 43% as businesses front-loaded demand.

A Weaker-Than-Expected Contraction

The US economy shrank more than initially reported in the first quarter of 2025, with final GDP figures showing a -0.5% contraction compared to the preliminary -0.2% estimate. The downward revision reflects weaker consumer spending and persistent inflation pressures, complicating the Federal Reserve's path forward.

Consumer spending, a key driver of economic activity, rose just +0.5% in the quarter—far below the preliminary +1.2% estimate—as high prices eroded purchasing power. Meanwhile, inflation remained stubbornly elevated, with the PCE price index climbing to +3.7% (up from +3.6%) and core PCE (excluding food and energy) ticking up to +3.5% from +3.4%.

Trade Disruptions Add to Economic Drag

A surge in imports—up 43%, the largest increase since 1974 outside of the post-pandemic rebound—contributed to the GDP contraction as businesses rushed to stock up on goods ahead of new tariffs. The resulting inventory buildup temporarily boosted activity but ultimately dragged on net trade figures.

"The front-loading of demand ahead of tariffs created a short-term bump that masked underlying weakness," said one economist familiar with the data. "Now that the initial rush has passed, we're seeing the real impact of higher costs and policy uncertainty."

Policy Uncertainty Clouds Outlook

The revised figures come amid ongoing trade policy shifts, including a US court's temporary suspension of recently imposed tariffs. While the suspension may provide some relief, analysts warn that prolonged uncertainty could further dampen business investment and consumer confidence.

Market watchers now expect subdued growth in the coming quarters, with risks tilted to the downside if inflation fails to moderate. The Federal Reserve faces a delicate balancing act as it weighs the need to curb price pressures against signs of softening economic activity.