Is the US headed for a recession? What analysts are saying about Q1’s GDP decline
The slowdown comes as US firms stock up on inventory ahead of Trump’s tariffs.
Key takeaways
- The US economy contracted at a rate of 0.3% in the first quarter of 2025.
- The slowdown in GDP growth was driven by a surge in imports, as US firms attempted to front-run tariffs.
- Analysts say the slowdown, while concerning, is not necessarily a sign of an imminent recession.
Worries that the US economy is headed for a recession thanks to President Donald Trump’s tariffs are mounting in the wake of new data showing the US economy shrank in the first quarter.
The 0.3% annualized contraction in growth domestic product was driven by a 41% surge in imports, the new data shows, as firms scrambled to get ahead of the Trump administration’s sweeping new tariff regime. The first-quarter decline marks a sharp turn for the economy after GDP grew at a healthy 2.4% annual rate in the fourth quarter of 2024.
The contraction is seen as an early sign that Trump’s levies, which have already stoked anxiety among investors and pessimism among consumers and businesses, are weighing on real measures of economic activity. While the import surge may be a temporary phenomenon, there are broader concerns that a more pronounced economic slowdown may be ahead.
Economists say the tariffs could weaken economic growth and stoke inflation, at least in the short term. Many forecasters have raised their recession odds in response to a newly uncertain outlook and mounting risks. Still, analysts say one quarter of negative GDP growth is not itself a sign that a recession is underway.
Here’s more on what analysts are saying about Wednesday’s data.
Preston Caldwell, senior US economist at Morningstar
“While Q1 2025 real GDP growth was negative, this doesn’t mark the beginning of a recession. The cause of the large negative figure is a surge in imports (subtracting from net exports), as companies raced to stock up on imported goods before tariffs hit. In principle, that should have been fully offset by an increase in other expenditures accounting for the use of the imported good. After a good arrives at the US and is counted as an import, it has to be stored or shipped (counted as inventory) or sold to its final customer (counted as consumption or private fixed investment).
“Given the timing, most of the imports should have flowed into inventories. But while net exports contributed negative 4.8 percentage points to GDP growth, inventory accumulation contributed just 2.3 percentage points. Hence, there wasn’t a full offset from inventories. This may be corrected in later upward revisions to Q1 inventory data. Alternatively, Q2 may register a large increase in inventories, even as imports subside, which means that Q2 GDP growth could look artificially strong, just as Q1 growth looked artificially weak. This sort of noisiness in the GDP data at a quarterly frequency is not unusual, which is why it’s important to look beyond the headline data.
“Final sales to domestic purchasers (which strips out both net exports and inventories) increased by 2.3% in Q1 2025, a seemingly solid result. But looking further under the hood, we see some room for concern. Personal consumption grew by just 1.8%, its slowest in nearly two years. Private fixed investment jumped by 7.8%, but this is likely to weaken drastically in coming quarters as businesses cope with tariff impact and uncertainty.”
Dominic Pappalardo, chief multi-asset strategist for Morningstar Investment Management
“This report did little to give any concrete clarity on what to expect going forward in a post-tariff world. If anything, it did confirm that tariffs will have a major impact on consumer behavior and economic activity. The shifts seen today cannot continue through the remainder of 2025.
“Next quarter’s GDP will likely tell a much different story as tariffs will undoubtably have a profound impact. From a mathematical perspective, the impact from imports should be reversed and flip to a positive contributor as import activity will almost certainly crater. Other than the tariff-specific activity, today’s report generally showed continued economic expansion, albeit at a slower pace. Once again, economic data remains wildly unpredictable given the elevated uncertainty around tariffs and other policies, which will likely lead to continued high volatility in capital markets.”
Tim Quinlan and Shannon Grein, economists at Wells Fargo
“The US economy is at a greater risk of recession now than it was a month ago, but this 0.3% contraction in Q1 GDP 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.
“In a nutshell, tariff disruption introduced a lot of noise into the headline Q1 growth number. The question is for how long consumers and businesses can withstand uncertainty. If Q1 growth was influenced by a pull-forward in demand to get ahead of tariffs, to what extent should we brace for a hangover effect in Q2?”
Oliver Allen, senior US economist at Pantheon Macroeconomics
“The outright fall in headline GDP was mostly due to an unprecedented pre-tariff surge in imports, which probably is being imperfectly measured. But we nonetheless see clear signs that the economy already was fundamentally slowing in Q1. A period of stagnation now likely lies ahead if the current set of tariffs is maintained, with recession the most likely outcome if the additional reciprocal tariffs are imposed in full in July.”
Michael Reynolds, vice president, investment strategy at Glenmede
“The fall in real activity and acceleration in prices from today’s GDP report hints at potential stagflation but is still more modest in outcome than dire projections. Tariff-driven inflation and impacts on business/consumer spending will likely add to this concern in the coming months.
“Q1 GDP reflects the state of the economy before the Liberation Day tariff announcements. Investors should keep a close eye on how consumers alter their spending patterns as the impact of tariffs starts to flow-through to retail prices. Whether they continue to consume through higher prices (as they did in 2022) or pull back on spending will be a key determinant of the fate of the ongoing U.S. economic expansion. The impact of tariffs should, at minimum, lead to a notable economic slowdown and runs the risk of creating a near-term recession.”
Sal Guatieri, senior economist at BMO Capital Markets
“The US economy’s modest contraction in Q1 was mostly due to temporary issues, but the trade war will weigh this year.
“Tariff frontrunning and DOGE-led cuts explain much of the economy’s rough start to the year. But weaker exports and intense uncertainty will hold the economy back in the next couple of quarters. Once the Fed gets more clarity on the situation, it will likely address the economy’s weakness by resuming rate cuts in July.”
Brian Rose, senior US economist at UBS Global Wealth Management
“We are not overly concerned about the negative GDP print. After all, the economy expanded 2.5% in 2022 as a whole despite the decline in 1Q22. What is more concerning is the potential impact of tariffs, which is likely to cause a more substantial economic slowdown in the second half of 2025.”
