The US economy has just had its worst quarter since 2022, since the important policy changes of President Donald Trump disturbed consumers and companies.
The internal gross product (GDP), which measures all goods and services produced in the economy, registered an annualized rate of -0.3 % in the first quarter, the trade department said Wednesday.
It is a strong slowdown with respect to the rate of 2.4 % of the fourth quarter of 2024, and much worse than the 0.8 % rate projected by economists. GDP is adjusted by seasonal oscillations and inflation.
The US actions opened down after the publication of the GDP report: the Dow Jones dropped 400 points (1 %). The S&P 500 fell 1.5 % and the Nasdaq Composite, with a strong technological component, collapsed 2.2 %.
The Trump government has been in a chaotic wave of tariffs in recent months, which intensified commercial tensions with China and disturbed Americans. Most economists claim that Trump’s monumental attempt for restructuring world trade will probably trigger inflation in the United States and will even lead to a recession.
The president, however, diverted the fault of the weak figures reflected in the first economic report of his second term.
“Our country will prosper, but we have to get rid of the ‘excess’ of Biden,” he wrote on Wednesday in a publication on social networks. “This will take a bit, it has nothing to do with tariffs, only that he left us with bad figures, but when the boom begins, it will be like no other. They have patience !!!”
The decline of the economy was due to a higher commercial deficit – resulting that the Americans advanced their purchases to avoid Trump tariffs – already cuts in public spending, according to a statement. Imports were fired from -1.9 % in the fourth quarter to 41.3 % in the first three months of the year. Meanwhile, exports registered a 1.8 %rate.
When imports exceed exports, this reduces GDP, and that was the largest ballast for growth in the first quarter. The difference between imports and exports was that GDP has affected the most since 1947, date from which records are available.
Report details
There were several signs of weakness in the first economic report of Trump’s second mandate, but not everything was pessimism.
The consumer expense, which drives approximately 70 % of the US economy, slowed drastically in the first quarter and reached a rate of 1.8 %, a considerable reduction compared to 4 % of the previous quarter. This slowdown was mainly due to the fact that the Americans cut their expense on goods, and was the lowest rate since mid -2023.
Public spending also affected the economy: federal disbursements fell from 4 % to -5.1 % during the same period.
Meanwhile, companies increased their expense, probably to anticipate any price increase planned derived from Trump tariffs. Business investment in the first quarter expanded at a rate of 9.8 %, a strong increase from -3 % of the fourth quarter.
In good news, the final sales to private domestic buyers – a key indicator of the underlying demand in the economy – accelerated to 3 % in the first quarter, compared to 2.9 % of the fourth quarter.
We still can’t call it recession
While the last GDP report indicates the weakening of the economy compared to last year, that does not necessarily mean that Americans are in the middle of a recession.
A recession is technically defined as a generalized contraction of the economy – which covers the labor market, consumer spending, industrial activity and business investment – that lasts more than a few months. And although it may seem like a recession, according to surveys the economy remains in good shape on some important fronts.
Unemployment is still relatively low (4.2 % in March), companies continue to invest in their operations and consumers have not yet reduced their expense significantly, according to government data.
Even so, the economy can get worse rapidly, especially if Trump increases the commitment to its tariff offensive.
“I do not think we can talk about a recession from these data at this time, but it is a sign that we are at a very narrow limit, where the longer the tariffs remain in force, the more likely we are going to an economic recession,” said Gregory Daco, chief economist of Ernst & Young, to Matt Egan de CNN.
A separate report published Wednesday showed an abrupt fall in hiring by US private sector companies, which does not predict anything good for economic growth in the future.
Employers created only 62,000 jobs in April, according to the latest monthly report of the ADP payroll, published Wednesday morning. This figure is well below the 147,000 jobs created in March.
“‘Constress’ is the word of the day. Employers try to reconcile political and consumer uncertainty with a mostly positive series of economic data,” said Nela Richardson, chief economist of ADP, in a statement. “It may be difficult to make hiring decisions in such an environment.”
A general rule to define a recession are two consecutive quarters of negative GDP, something that has not yet happened. The National Office of Economic Research is the official referee of the recession, although its decision can arrive many months after the official start of the same.
The last time the US economy was in recession was in 2020, which lasted only two months and was driven by the Covid-19 pandemic. Before that, it was the great recession, which lasted from December 2007 to June 2009 and was the most serious economic crisis from the great depression.
Source: Cnnenespaly
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