Weak consumer spending + trade turmoil, U.S. Q1 economy shrinks by 0.2%

According to the Zhitong Finance APP, the U.S. economy contracted at the beginning of this year due to weak consumer spending and trade turmoil. The Bureau of Economic Analysis released its second estimate on Thursday, showing that the annualized quarterly rate of real Gross Domestic Product (GDP) for the first quarter was revised to -0.2%, compared to the initial report of -0.3%.

The main growth engine of the U.S. economy—consumer spending—grew by 1.2%, lower than the initial estimate of 1.8%, marking the lowest growth rate in nearly two years. Meanwhile, net exports dragged down GDP by nearly 5 percentage points, slightly higher than the initial forecast.

The slight upward revision of GDP reflects stronger business investment and greater inventory accumulation. The drag from federal government spending on the economy was not as severe as initially reported.

As more data is released, GDP figures will be revised multiple times, allowing the government to fine-tune its estimates. The first forecast released at the end of April indicated that the U.S. economy contracted for the first time since 2022. The final value will be announced next month.

At the beginning of this year, a surge in imports, as U.S. companies rushed to act before tariffs imposed by President Donald Trump, weighed on economic growth. Moderate consumer spending and a decline in federal government spending also put pressure on economic growth.

Subsequently, the White House rescinded or postponed some punitive tariffs, and most tariffs were blocked by U.S. trade courts. While these measures helped alleviate Americans' concerns about the economy and led many economists to abandon recession forecasts, tariff rates remain significantly higher than before Trump took office.

Forecasters generally expect a rebound in second-quarter GDP due to tariff increases suppressing imports, while already imported goods will accumulate into larger inventories, thereby promoting economic growth. Additionally, economists and policymakers will closely monitor how Trump's policies—including trade, immigration, and taxes—will affect future consumer and business spending.

Data released on Thursday showed that the underlying demand in the overall economy for the first quarter was weaker than initially expected. Final sales to domestic private buyers grew by 2.5%, the lowest level in nearly two years. This metric combines consumer spending and business investment, favored by economists.

Consumer spending data was revised downward, primarily due to weakened demand for automobiles. Spending on services, including healthcare and insurance, was also revised down.

Trump believes that his trade policies will drive long-term economic growth by revitalizing domestic manufacturing in the U.S., which will increase employment and lower the prices of U.S.-made goods