WASHINGTON — The U.S. economy shrank at an annual rate of 0.2% from January through March, according to revised figures released Thursday by the Commerce Department. This was the first economic contraction in three years.
The decline followed a 2.4% increase in gross domestic product (GDP) in the fourth quarter of 2024. The contraction was primarily due to a sharp increase in imports. U.S. companies imported large volumes of foreign goods during the first quarter to avoid upcoming import taxes proposed by President Donald Trump.
Imports rose at a 42.6% annual rate, the fastest since the third quarter of 2020. This reduced GDP growth by more than five percentage points. Consumer spending also slowed during the same period.
GDP measures domestic production. Imports are subtracted from GDP to prevent them from being counted as domestic output. For example, when a consumer buys imported goods such as Costa Rican coffee, the value is counted under consumer spending and then subtracted to reflect that it was not produced within the United States.
Analysts expect the import surge to be a one-time event. It is not expected to affect GDP in the second quarter.
This report was the second of three estimates on first-quarter GDP. The final estimate will be released on June 26.