The US economy actually took a bigger hit in Q1 than earlier reports showed

The American economy shrank at a faster rate than initially believed at the start of 2025, as newly revised data revealed that consumer spending was significantly weaker than earlier estimates suggested.

According to the Commerce Department’s final reading released Thursday, gross domestic product (GDP) dropped at an annualized rate of -0.5% between January and March. That’s a sharper decline than the previously estimated -0.2%. GDP figures are adjusted for seasonal patterns and inflation.

This updated estimate showed a concerning slowdown in consumer spending — the heartbeat of the U.S. economy — with first-quarter growth at just 0.5%, down from an earlier estimate of 1.2%. That pace marks the most sluggish performance in over four years.

The contraction in GDP was largely tied to a substantial trade imbalance. Businesses, anticipating stiff tariffs under President Donald Trump, raced to import goods early in the year. Although import levels were revised slightly lower in this latest estimate, they still far surpassed exports, which dragged on overall GDP growth.

The broader set of economic data released Thursday, though retrospective in nature, gives a more complete sense of how the economy responded to major policy changes introduced by Trump. Alongside the new GDP figures, the government released updates on durable goods orders, unemployment claims, and mortgage activity.

“Thursday’s GDP is backward looking and stocks already priced in the economic weakness caused by the tariffs during their decline in early April,” wrote Paul Stanley, chief investment officer at Granite Bay Wealth Management. “Now, with stocks back at record highs, the market is looking ahead and pricing in an environment where tariffs are lower and that companies will be able to adapt and navigate tariffs.”

At the same time, economic indicators continue to reflect how trade fears are putting pressure on the country’s financial health. Both the job market and consumer activity — two central drivers of growth — appear to have lost steam.

Another report from the Labor Department released Thursday showed that more Americans are struggling to find work. The number of people receiving unemployment benefits for at least a week increased by 37,000, reaching 1.974 million, the highest level since November 2021.

“The data today confirmed that continuing claims are going up because it takes a little longer to find a job. That’s consistent with the hiring numbers just being slower as the economy comes to a more sustainable pace,” said San Francisco Federal Reserve President Mary Daly during an interview with Bloomberg. “But when I look at the labor market, there are really no warning signs that it’s weakening.”

Meanwhile, new data from the Commerce Department pointed to a sharp uptick in demand for long-lasting goods. Orders for U.S. durable goods jumped 16.4% in May, thanks largely to increased purchases of transportation equipment. This surge came on the heels of a reduction in tariffs — China lowered rates on American exports from 125% to 10%, while the U.S. dropped its own rates on Chinese imports from 145% to 30%.

In a sign of renewed optimism for business investment, orders for non-defense capital goods excluding aircraft — a key measure of investment intentions — rose 1.7% in May from the prior month. That’s a significant rebound from April’s 1.4% decline and could bode well for the second-quarter growth outlook, which will be announced next month.

Still, economists say the latest revisions are unlikely to significantly sway the Federal Reserve, which is split over whether to begin easing interest rates again in the near future.

“The revisions to GDP won’t have significant implications for the Federal Reserve as it’s backward looking. The Fed is focused on the inflation risks stemming from tariffs and the labor market,” noted Ryan Sweet, chief U.S. economist at Oxford Economics. “If the Fed pivots and signals that it will cut rates earlier than we anticipate, with the next occurring in December, it will be because of the labor market, not GDP.”

Note to our readers: This article is based on data and commentary from official government sources including the U.S. Commerce Department, Labor Department, and Federal Reserve, as well as leading economic analysts. All information has been independently verified through credible financial and governmental institutions.