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The U.S. economy contracted sharply in the first quarter, according to an early Commerce Department estimate published Wednesday, as the impact of tariffs triggered a record surge in imports and slowed domestic spending.
First-quarter GDP was pegged at -0.3%, down from the positive 2.4% pace recorded over the final three months of last year and well shy of Wall Street's forecast for an advance of around 0.4%. The contraction marks the first time the economy has shrunk since the first quarter of 2022.
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Overall consumption slowed to 1.2% from 2.7% over the final months of last year, the data indicated. Government spending contracted 0.25% following a rise of 0.52% over Q4 2024.
The PCE price index for the first quarter was also outside Wall Street's forecast, with the Federal Reserve's preferred measure rising 3.6% on a headline basis, and 3.4% after stripping out volatile components such as food and energy prices.
Data published earlier this week showed the biggest tally of U.S. imports on record as businesses front-loaded purchases ahead of what President Donald Trump called his Liberation Day tariffs. That surge, which included a records goods deficit of $162 billion, is likely to have shaved nearly 2 percentage points from first-quarter GDP.
“Thanks in part to companies stockpiling imports ahead of the implementation of Trump’s tariffs, resulting in a significant imbalance between imports and exports, the 0.3% contraction reported today comes as no surprise," said Lindsay James of London-based Quilter Investors.
"The Atlanta Fed’s GDPNow estimate for Q1 pointed to an annualixed contraction of as much as 2.7%, so it seems the downturn is not as severe as it could have been," he added. "However, given it is only the first reading, there is a chance it could be revised down further yet."
U.S. stocks extended declines following the data release, with futures contracts tied to the S&P 500 indicating an opening-bell decline of around 71 points and the Nasdaq called 350 points lower.
Benchmark 10-year Treasury note yields, meanwhile, rose 5 basis points to 4.212% following the release and the faster-than-expected PCE reading, while 2-year notes edged 3 basis points higher to 3.671%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was last seen 0.2% higher on the session at 99.429.
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