Economic Outlook Following 1Q25 US GDP Data

The headline GDP result of -0.3% obscures the underlying economic reality.

The decrease was almost entirely due to a surge in imports – which mathematically detract from the GDP calculation – as consumers and businesses sought to get ahead of new tariffs. Modest additional downside came from the government spending component of GDP, as federal cuts were not offset by slight increases on the state and local level.

For business leaders, this result is another negative headline that will likely weigh on sentiment. But it is critical to focus on the drivers of the GDP contraction: government spending and the timing of import activity. These are not the harbingers of a traditional recession, and 1Q25 certainly did not “feel” like a recession to most businesses.

While uncertainty may be delaying decision-making for some firms, overall gross private domestic investment rose in 1Q25. The labor market remains strong, resulting in stable consumer finances. As a result, consumer spending – which accounts for two thirds of GDP – rose at a normal rate across both the goods and services categories.

ITR Economics expects growth for the remainder of 2025.