GDP Report: First Quarter Growth Was Negative — What That Means

Updated on May 30.

Real gross domestic product declined by an annual rate of 0.2% in the first quarter of 2025, according to the second estimate report released on May 29 by the Bureau of Economic Analysis.

Trump wants to change how economic growth is measured

The Trump administration is eyeing a change in how gross domestic product (GDP) is measured in the wake of federal spending cuts.

On March 2, Commerce Secretary Howard Lutnik told Fox News that the Trump administration may split government spending from GDP. He said, “You know that governments historically have messed with GDP. They count government spending as part of GDP. So I’m going to separate those two and make it transparent.”

Similar remarks were made by Elon Musk, billionaire and leader of the so-called Department of Government Efficiency (DOGE) on Feb. 28. DOGE has recently taken action to lower government spending, which includes firing thousands of federal employees, freezing federal funding and eliminating government contracts.

It’s unclear why the administration has put the target on GDP data transparency since the Bureau of Economic Analysis (BEA) already breaks down government spending at the federal, state and local levels for each quarter. Those results are published by the BEA on a quarterly basis.

Economic data has shown some disappointing figures that include stubborn inflation levels; fewer hires; and lower consumer spending. Consumer confidence in the economy is down, as well. The latter is largely due to Trump’s recent tariff announcements, according to the Conference Board’s recent survey results.

GDP could be the next concern: On March 3, a forecasting tool published by the Atlanta Federal Reserve showed that GDP could contract by a rate of -2.8% in the first quarter of 2025. If GDP does indeed decline, it would be the first time since the first and second quarters of 2022.

U.S. growth turned negative in the first quarter of 2025, according to a second estimate released on May 29 by the Bureau of Economic Analysis.

Negative growth, or contraction, is generally a red flag that there is a slowdown happening in the economy. It shows that consumers and businesses may be spending less. Two consecutive quarters without growth is the traditional definition of a recession.

» MORE: Are we in a recession?

GDP, or gross domestic product, is the market value — in current dollars — of all goods and services produced within the United States in a given period; Real GDP adjusts that measure for inflation. Changes in GDP are expressed on an annualized basis.

Does the first quarter growth slowdown signal trouble ahead?

Real gross domestic product decreased by an annual rate of 0.2% in the first quarter of 2025, according to the second estimate released on May 29 by the Bureau of Economic Analysis.

But the first quarter decline wasn’t necessarily a sign of distress in the economy: It was primarily due to an increase in imports, largely due to businesses stocking up on foreign goods ahead of President Donald Trump’s tariffs. As the Federal Reserve’s Open Market Committee (FOMC) noted in the minutes from its May meeting, “this first quarter estimate was likely affected by measurement issues.”

If the second quarter of 2025 is also negative and it’s not due to import increases, then that could be a clearer indication of some shakiness in the economy.

The Atlanta Federal Reserve’s GDPNow GDP estimate has taken a sharp upward turn for Q2 2025: +3.8% as of May 30, compared to +2.2% on May 27.

Fed projects 1.7% growth for 2025, lower than previous forecast

Recent GDP projections by the FOMC forecasts lower growth for 2025 (1.7%) compared to its December forecast (2.1%), according to the FOMC’s Summary of Economic Projections released after its meeting March18-19

In terms of how the Fed might respond to changes in growth, Federal Reserve Chair Jerome Powell said at an event on April 4, “Inflation is going to be moving up and growth is going to be slowing, but to me it's not clear at this time what the appropriate path for monetary policy would be. We're going to need to wait and see how this plays out before we can start to make those adjustments.”

GDP for the first quarter of 2025

The BEA’s second estimate showed that the U.S. GDP grew at a slower pace in Q1 than it did in the fourth quarter of 2024.

In the first quarter — covering January, February and March — real GDP contracted by 0.2%, the second estimate shows.

The first quarter growth rate was much lower than what was reported in recent quarters:

2.4% annual rate of growth in Q4 2024.
3.1% annual rate of growth in Q3 2024.
3% annual rate of growth in Q2 2024.
1.6% annual rate of growth in Q1 2024.
3.4% annual rate of growth in Q4 2023.
4.9% annual rate of growth in Q3 2023.
2.1% annual rate of growth in Q2 2023.
2.1% annual rate of growth in Q1 2023.

The final estimate for Q1 2025 GDP will be released on June 26.

How did GDP in 2024 compare to recent years?

In 2020, at the beginning of the COVID-19 pandemic, the annual rate of GDP dropped to levels far below even those during the Great Recession, federal data shows. By the end of 2020 and into 2021, GDP rebounded quickly. However, the first two quarters of 2022 showed signs of slowing down before a more robust finish at the end of the year. GDP continued its upward trajectory through 2023 and 2024.

In 2024, the U.S. GDP grew 2.8%, just slightly below the 2.9% increase in 2023. The 2024 increase was primarily due to growth in consumer spending, investment, government spending and exports. Imports, which subtract from GDP, also increased.

Why did GDP decrease in Q1 2025?

The first quarter 2025 drop in GDP is largely due to a surge in imported goods as companies and consumers tried to get ahead of tariffs. That said, imports aren’t produced in the U.S. so they aren’t counted in the same way as other GDP factors like household spending, exports and investments. It’s likely that the negative GDP in March reflected a technicality rather than an economic slowdown.

What did people spend money on in Q1 2025?

Imports rose largely due to an increase in consumer goods like medicine, dental supplies and other pharmaceuticals. The measure of consumer goods doesn’t include food and cars. There was also an uptick in capital goods — items purchased by businesses — like computers and their accessories. The measure of capital goods doesn’t include autos.

Government spending declined mainly because the military spent less on goods and services. That decline was offset by an increase in compensation in state and local government.

Within consumer spending, increases were recorded in both goods and services. Spending went up in health care, as well as housing and utilities. It also increased in recreational goods and vehicles, as well as motor vehicles and parts.

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