The U.S. economy just had its worst quarter in three years, as a cloud of uncertainty has been forming amid President Donald Trump’s seismic policy changes. And the stock market has been on a slide today after several days of positive results.
The country's gross domestic product, the value of all goods and services, shrank at an 0.3% annual rate in the first three months of the year, down from a 2.4% increase at the end of last year. Imports drove the change, as companies scrambled to bring in foreign goods ahead of announced tariffs. The trade gap subtracted from economic growth.
Stocks slid early Wednesday on the news, though the underlying economy did turn in a solid showing in the first quarter despite tumbling consumer confidence and rising business uncertainty over the import fees. Trump responded quickly on his social media platform, Truth Social: “This is Biden’s Stock Market, not Trump’s. I didn’t take over until January 20th.”
“Tariffs will soon start kicking in, and companies are starting to move into the USA in record numbers,” Trump wrote, promising a “boom” urging Americans to “BE PATIENT!!!”
Biden’s allies rallied around the former president, and economists noted a period of economic growth under Biden.
Here's the latest:
Uncertainty in the stock market as economy contracts
The spate of negative economic news and trade war comments from earnings releases had stocks trading lower Wednesday morning, but major indexes were able to pare losses by the end of the day.
Some stocks were sharply lower after earnings releases that included comments about tariff woes. Super Micro warned its fiscal third quarter results would miss analysts' expectations as customers delayed platform decisions. The stock was 17% lower. Meanwhile, shares of app maker Snap were 16% lower after the company declined to give guidance due to economic uncertainty. It also said some advertisers have reported an impact from changes to the de minimis exemption that is scheduled to end May 2.
The blue-chip Dow ended Wednesday up 0.35%, gaining 141.7 points to trade near 40,669, while the broad S&P 500 was up 0.15%, gaining 8 points to about 5,569. The tech-heavy Nasdaq composite slid 0.086%, down nearly 15 points to about 17,446. The 10-year U.S. Treasury note changed little at 4.17%. The VIX, which is often known as Wall Street's "fear gauge," jumped 1.57%.
Reports of solid growth in consumer spending helped restore investor confidence, according to Sam Stovall, chief investment strategist at CFRA Research, as well as optimism that imports that drove the GDP decline won't carry over to subsequent quarters.
The imports "really had an outsized effect on GDP. And we're not going to have that the next time around," Stovall said. "When they were parsing the data and reading what really caused it, and would that be repeated, they concluded, no, it's not as worrisome as we were anticipating."
- Medora Lee, Andrea Riquier and Bailey Schulz
Fed signals rates will remain unchanged
Federal Reserve policymakers have signaled that short-term interest rateswill remain unchanged as they wait for clearer signs that inflation is nearing the U.S. central bank's 2% goal or until there is a whiff of a deteriorating job market.
The data so far has presented neither of those scenarios to the Fed, and though economists say the real drag from President Trump's aggressive import tariffs lies ahead, there is a great amount of uncertainty over where the policies will end up and the degree and timing of their impact on prices and jobs.
"The cone of possibilities," as Cleveland Fed President Beth Hammack put it recently, is quite large, and includes the possibility of persistently higher inflation coupled with a slowdown in economic activity that would require the central bank to pick which battle to fight.
That dilemma has not stopped traders from betting that by June a faltering economy will likely move the Fed to resume its rate cuts, ultimately lowering borrowing costs by a full percentage point by the end of this year. They added to those bets on Wednesday after data showed the U.S. economy shrank last quarter and the Fed's preferred measure of price inflation did not rise at all on a monthly basis in March.
But while economists say such a rate-cutting scenario is not out of the question, they are quick to note that inflation remains elevated and is likely to worsen at least temporarily as retailers raise prices to cover higher costs from the sharp increase in import levies. Longer-term inflation expectations remain largely grounded, but a few Fed policymakers have taken note of a sharp rise in short-term inflation expectations that they worry could set the stage for a resurgence in price pressures.
− Ann Saphir, Reuters
ADP employment report shows slower hiring
The private sector added 62,000 jobs in April, according to the latest ADP National Employment Report, well below the 115,000 jobs anticipated by economists polled by Reuters and down from ADP’s revised estimate of 147,000 job gains in March.
ADP’s chief economist, Nela Richardson, said it’s been a difficult environment for hiring decisions.
“Unease is the word of the day. Employers are trying to reconcile policy and consumer uncertainty with a run of mostly positive economic data,” Richardson said in a press release.
ADP's report, in addition to Wednesday’s GDP report and a pullback in business and consumer surveys, signals “the economy is losing momentum and risks to the economic outlook are increasing,” according to a note from Bill Adams, chief economist for Comerica Bank.
ADP’s figures are an independent measure of employment based on payroll data from more than 25 million employees. It is typically viewed as a preview of the more comprehensive jobs report released by the Bureau of Labor Statistics each month, although there is no correlation between the reports.
The Bureau is set to release its next jobs report Friday. Economists surveyed by Dow Jones Newswires and The Wall Street Journal expect to see 133,000 jobs added in April, down from 228,000 added in March.
‒ Bailey Schulz
Trump already blaming Biden on economy for future economic reports
Trump doubled down on blaming his predecessor for the shrinking economy under his watch during a Wednesday Cabinet meeting that he opened to reporters.
Despite being on the job 101 days, Trump even argued Biden – not him – should be held responsible for the performance of the upcoming second GDP quarter, which runs from the beginning of April through July.
"You could even say the next quarter is sort of Biden," Trump told reporters. “We're turning it around. It's a big ship to turn around, and we're going to have the greatest country financially in the history of the world.”
Trump met with his Cabinet secretaries for two hours and three minutes as his administration’s top officials took turns praising the president’s first three-plus months in office and updating him on their efforts to carry out his agenda. The meeting followed reports that the country's gross domestic product shrank at 0.3% annual rate in the first three months of the year.
‒ Joey Garrison
GOP senators have mixed reaction to dropping economic indicators
Congressional Republicans had mixed reactions to the 0.3% dip in the U.S. GDP announced Wednesday morning, with some expressing concern and others urging patience while the wake of President Donald Trump's tariffs hopefully stabilizes.
"How can anybody look at it objectively and not be disappointed?" asked Sen. Thom Tillis, R-N.C. Tillis is one of the most vulnerable sitting GOP senators as he's up for reelection in his swing state next year.
It was caused by "several different factors," he said. Asked by USA TODAY what he made of Trump blaming former President Joe Biden for the change, Tillis was straightforward.
"That will work now. It won't work six months from now," he said. "There is some argument to say that some of this is a lag from the prior administration. But once you get elected, you own the economy."
Sen. John Kennedy, R-La., said the GDP number only dropped because of increased imports "as people are trying to get ahead of tariffs."
Asked whether that is attributable to Trump, given the tariffs are his policy, Kennedy said only that "it's attributable to consumer behavior."
Sen. Jerry Moran, R-Kan., said of course "we want to see a growing economy," but urged patience.
"There are negotiations that are apparently taking place," between the administration and other countries over tariffs, he said, so "we ought to give the administration and particularly the USTR the chance to work out agreements with countries that are interested in changing their behavior in order to do business in the United States."
‒ Riley Beggin
Why are imports subtracted from GDP?
The economy contracted in the first quarter because imported goods surged at a whopping annual rate of 50% as businesses stocked up on foreign merchandise before tariffs took effect. And the value of imports is traditionally subtracted from the economy’s total GDP.
Why?
In the GDP report, the government measures the amount of goods produced in the U.S. by totaling consumer spending, business investment and other outlays. Since imported goods are made overseas, they must be subtracted from the total that consumers, companies and the public sector purchased during the quarter.
‒ Paul Davidson
Key inflation gauge cooled in March
A key measure of inflation cooled in March, according to new Commerce Department data, a dose of good economic news mixed in with the bad.
The personal consumption expenditures (PCE) price index rose 2.3% from a year earlier, a lower annual inflation rate than in recent months. PCE inflation measures what Americans pay for goods and services. It’s the favored inflation measure of the Federal Reserve, the panel that sets interest rates. A 2.3% inflation rate is close to 2%, the Fed's inflation target.
March inflation data comes from a time before most of Trump’s tariffs took hold.
The Commerce report showed that U.S. consumer spending rose 0.7% in March, a solid gain.
“Investors should be diligent, but the U.S. economy could prove more resilient than people expect,” said Scott Helfstein, head of investment strategy at Global X.
- Daniel de Visé
Economists respond to disappointing GDP report
Economists saw both good and bad tidings in the GDP report, which seemed to show an import-driven decline overlaid against an otherwise sound economy.
“The economy weakened in the first quarter,” said Bill Adams, chief economist at Comerica Bank, in written comments. “Businesses and consumers pulled forward purchases to get ahead of tariffs in the first quarter, and throttled back spending and investment plans in other areas.”
A dramatic surge in imports “puts an asterisk on today's negative first quarter GDP release,” said Peter Graf, chief investment officer at Nikko Asset Management Americas. At the same time, Graf said, the tariff reaction “shows how dramatically government policy expectations can drive real-world business decisions. Companies got ahead of possible tariffs by building inventories, just as they are now likely getting ahead of a possible policy-driven recession by reducing hiring and investment.”
An economic decline in the midst of an expansion “is unusual,” but “it’s not unheard of, and the economy isn’t in a recession,” said Ryan Sweet, chief U.S. economist at Oxford Economics.
- Daniel de Visé
Biden allies fire back at Trump over stock market blaming
Allies of former President Joe Biden fired back after Trump tried to blame the plunging stock market under his watch on his predecessor.
The S&P 500, which tracks the stock performance of 500 leading companies, grew by 14% annually during Biden’s four years in the White House, including by 23% in 2024 and 24% in 2023.
During Trump’s first 101 days of his second term, the S&P 500 is down about 8%.
“When Joe Biden handed Donald Trump the best-performing economy in the world, experts praised the U.S. for leaving every other wealthy nation ‘in the dust,’ said Andrew Bates, former Biden deputy press secretary. “Now we’re plummeting toward a Trumpcession."
He added: “Donald Trump is the only president to have sent a strengthening economy into a nosedive in 100 days, and the only president to have bankrupted a casino."
In the same vein, some economic forecasters faulted the Trump administration over the GDP numbers, which came after a long span of economic growth under Biden.
"If you were looking for a playbook on how to slow a healthy economy, this seems like a good example," said Scott Helfstein, head of investment strategy at Global X.
- Joey Garrison and Daniel de Visé
White House: import influx is a 'one-shot' deal
Responding to the economic growth report, White House trade adviser Peter Navarro said the influx in imports was an anomaly caused by tit-for-tat tariffs that he expects to reverse in the next quarter and contribute to long-term economic growth.
“What happened with the numbers today is, we had a fairly extraordinary surge of imports that was totally driven by the rest of the world trying to get their products in here before the tariffs took full hold,” Navarro told reporters at the White House, referring to it as a "one-shot" deal.
Navarro said the tax bill Republicans in Congress are working to pass would also stimulate domestic investment. The bill would include 100% expensing for equipment and buildings in the U.S., a valuable tax write-off for businesses.
Like the president, Navarro pointed the finger at former President Joe Biden, calling the economic situation “fruit of that poison Biden tree” that Trump has been stuck with.
“He didn't leave us with a very good hand,” Navarro said of Biden. “Right now, we see things improving. We see our policies being put into action.”
-Francesca Chambers
Experts blame GDP fall on import surge
Experts blamed the GDP decline on a trade imbalance from an unprecedented surge in imports in early 2025, as traders rushed to stock up ahead of sweeping tariffs imposed by the Trump administration.
Trade data from January showed that the U.S. imported more goods than in any other month since the Census began tracking the numbers in 2002, hitting a record $320 billion and driven by sharp increases in products from China, Canada, and Mexico, which together supply nearly half of the nation’s foreign goods.
The trend continued in February, with imports remaining near record levels at over $290 billion – a 21% increase from February 2024 – as tariff fears persisted. Despite a brief pause on Canadian and Mexican tariffs, uncertainty kept importers scrambling to secure goods before further hikes, experts told USA TODAY. China’s tariffs rose from 10% to 20% in early March, and by mid-March, some rates on Chinese goods had skyrocketed to 145%.
As early as December 2024, as Trump vowed to impose new tariffs upon taking office, China reported that its exports to the U.S. had peaked at $48.8 billion, the highest monthly total for 2024. Experts told USA TODAY then that the spike was likely related to anticipated tariff hikes. The Census is scheduled to release trade data for March on May 6.
- Dian Zhang
Trump blames Biden for economic decline in first quarter
Trump blamed his predecessor for the tariff-induced economic slowdown in the first three months of the year, calling it the “Biden Overhang,” a day after he completed 100 days in office. Biden’s last full day in office was Jan. 19.
“This is Biden’s Stock Market, not Trump’s. I didn’t take over until January 20th,” Trump posted on Truth Social. “Tariffs will soon start kicking in, and companies are starting to move into the USA in record numbers.”
Trump urged patience from Americans.
“Our Country will boom, but we have to get rid of the Biden “Overhang,” he wrote. “This will take a while, has NOTHING TO DO WITH TARIFFS, only that he left us with bad numbers, but when the boom begins, it will be like no other. BE PATIENT!!!”
- Swapna Venugopal Ramaswamy
Did the US economy shrink?
The nation’s gross domestic product, the value of all goods and services produced in the U.S., shrank at a seasonally adjusted annual rate of 0.3% in the January-to-March period, the Commerce Department said Wednesday. That’s down from a 2.4% increase in the third quarter and a 2.8% advance for all of 2024.
Economists surveyed by Bloomberg had projected a meager 0.4% rise in output.
Is the US in a recession?
It marks the economy’s worst performance since early 2022. But the drop in output doesn't mean the nation has slipped into a recession. A recession is informally defined as two straight quarters of declining gross domestic product and the pullback in activity early this year marks just one quarterly decrease. More broadly, a recession technically is considered "a significant decline in economic activity that is spread across the economy and lasts more than a few months," according to the National Bureau of Economic Research, which calls recessions, typically many months after they begin.
Key pillars of the economy, such as consumer and business spending, performed well in the first quarter, and the slide in growth was caused by the tariff impacts. Forecasters widely expected the import surge ahead of the tariffs – a strategy known as frontloading – to dim the first broad snapshot of the economy in Trump’s second term. But its extent surprised many analysts.
Imports spike in Q1
Goods imports spiked at an annual rate of 50.9% the first three months of the year and the nation’s trade deficit widened by $14 billion to a record $162 billion in March. All told, the first quarter’s yawning trade gap subtracted about 5 percentage points from economic growth.
While imports should translate to overflowing business stockpiles that lift growth, that offsetting effect may take a few months to play out, said economist Michael Pearce of Oxford Economics. Since companies pulled forward their imports, much of the effect will likely be reversed in the current quarter, helping lift growth, said economist Paul Ashworth of Capital Economics.
A more telling economic gauge that captures consumer and business spending but strips out trade, inventories and government outlays – called final sales to private domestic purchasers – grew at a sturdy 3.9% annual rate.
Is an economic crash coming?
Yet many experts figure the economy will stagnate within a few months and a growing share foresee a recession by the second half of 2025. They cite Trump’s tariffs as well as his sweeping federal layoffs and deportations of hundreds of thousands of migrants who lack permanent legal status.
Are people spending less money?
Consumer spending softened, increasing 1.8%, down from a 4% rise in the fourth quarter, but a decent performance in light of stock market turmoil and poor weather early in the quarter. Consumption makes up about 70% of economic activity.
American households are still benefitting from relatively low debt and healthy wage growth that has outpaced inflation for nearly two years as a result of pandemic-related labor shortages.
Government spending falls
Government outlays fell 1.4% after rising 3.1% late last year. Federal government spending tumbled 5.1% as Elon Musk’s Department of Government Efficiency (DOGE) began hefty budget cuts and layoffs. The government also has frozen hiring.
State and local spending increased 0.8%.
Business investment surges
Business investment jumped 9.8% after falling 3% the previous quarter.
Company purchases of computers, delivery trucks, factory machines, and other equipment grew 22.5%. Businesses investment leaped largely because firms imported capital goods before tariffs take effect, economist Samuel Tombs of Pantheon Macroeconomics wrote in a note to clients.
Spending on buildings, oil rigs and other structures edged up 0.4%.
Company outlays are expected to decline later this year amid lingering uncertainty over tariffs.
Housing modestly boosts growth
Housing construction and renovation increased 1.3% after rising 5.5% in the fourth quarter.
Residential investment has been sluggish in part because builders are concerned that tariffs will sharply increase the cost of lumber, steel, aluminum and other building materials.
Also, high mortgage rates – a byproduct of inflation and Fed rate hikes – have discouraged many potential home buyers.
Will the Fed lower interest rates in 2025?
A dismal economic report theoretically could spur the Fed to lower interest rates again sooner. But since much of the weak showing was triggered by an import surge – rather than weak consumer or business spending – the Fed is likely to maintain its wait-and-see approach. The Fed's next two-day meeting begins May 6.
Also, a key inflation measure surged 3.7% in the first quarter, further dissuading the central bank from cutting rates.
After chopping rates by a percentage point late last year, the Fed has paused as it determines how much Trump’s tariffs could increase inflation and how much they may hobble the economy. Officials are grappling with an unusual period of “stagflation” – high inflation and a weakening economy - as their missions of keeping inflation contained and unemployment low are in conflict
The Fed lowers rates to support a weak economy but raises rates, or keeps them high, to fight inflation.
The report “is the worst of both worlds for the Fed, as it raises recession risks while also reaffirming stagflation risks,” said economist Jason Schenker of Prestige Economics.
(This story was updated to add new information.)
This article originally appeared on USA TODAY: Blame Trump or Biden? US reacts to economic slip in GDP report