Weak Spending, Exports Drive 0.5% GDP Contraction in the US

The US economy contracted more than initially estimated in 1Q25, according to revised government data released Thursday. Annualized GDP fell by 0.5%, deeper than the initial -0.2% estimate, due to weaker-than-expected consumer spending and exports.

The decline in GDP comes after a 2.4% expansion in 1Q24. According to the agency, the contraction was mainly driven by a sharp rise in imports, which are subtracted from GDP calculations, and a 4.6% drop in government spending.

These negative factors outweighed modest gains in business investment and consumer spending, both of which were revised lower than initially reported. The downturn was most evident in private goods-producing sectors like manufacturing, which declined by 2.8%, and in private services, which saw a 0.3% decrease.

Meanwhile, real final sales to private domestic purchasers were revised downward by 0.6% points to a 1.9% increase, indicating softer momentum than previously thought.

The report also highlighted ongoing inflationary pressures: the price index for gross domestic purchases climbed 3.4%, while the core personal consumption expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge, rose 3.5%, slightly above the previous estimate.