GDP Fell in Q1 — What That Means

U.S. growth turned negative in the first quarter of 2025, according to a third estimate released on June 26 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?

What is GDP?

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 0.5% in the first quarter of 2025, according to the third estimate released on June 26 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 for Q2 2025 is +3.4% as of June 26.

GDP for the first quarter of 2025

The BEA’s third 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 0.5%, the third 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.

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.