WASHINGTON–The U.S. economy contracted in the first three months of 2025 and inflation increased, as businesses rushed to stock up on imports ahead of President Trump’s tariffs, according to new data from the Commerce Department.

The Commerce Department’s new report on U.S. gross domestic product found GDP fell at a seasonally and inflation adjusted 0.3% annual rate during Q1, the steepest decline since the first quarter of 2022.

Consumer spending rose at a 1.8% annual rate, slowing sharply from 4% in the final quarter of 2024. Consumers drive the U.S. economy.

Rate Cuts Likely Delayed

“Real GDP fell slightly in the first quarter as consumer spending moderated. Meanwhile, imports increased 41%  as businesses stocked up on inventory ahead of tariff increases,” Curt Long, chief economist with America’s Credit Unions, said in a statement. “Consumption still grew, albeit at a slower rate than previously, and business investment rebounded from a poor fourth quarter. More troublingly, inflation accelerated, which combined with tariffs pushes the prospect for rate cuts further into the future. As always, credit unions are a trusted financial partner helping their members plan for the future in uncertain times.” 

Drag on Growth

The Commerce Department data show net exports, that is difference between imports and exports, helped to pull down Q1 growth, removing 4.83 percentage points from overall GDP. The numbers indicate imports increased 41.3% during Q1 as businesses sought to get ahead of any tariffs that might lie ahead and were just as robust during Q2

The new Commerce Department GDP data are below what many economists had anticipated.