The US economy shrinks by 0.3%in the first quarter, since Trump's trade wars disrupt companies

The US economy shrank from January to March with an annual pace of 0.3%, the first decline of three years when President Donald Trump's trade wars disrupted the business. The growth of the first quarter was slowed down by an increase in imports, as a company in the United States, to bring in foreign goods before Trump Purchased massive tariffs.

The January März descent of the gross domestic product of goods and services by the nation-end of 2.4% in the past three months of 2024. The imports rose at a speed of 41%, which has been the fastest since 2020 and shaved 5 percentage points on the growth of the first quarter. Consumer expenditure also slowed down strongly on 1.8% growth of 4% in October-December last year. The Federal Government's expenditure fell by 5.1%in the first quarter.

Prognostics, who were interviewed by the Data Company Factset, had expected on average that the economy distributed growth of 0.8% in the first quarter, but many expected GDP to drop.

The financial markets sank in the report. The Dow Jones plunged 400 points at the opening bell shortly after the PIP numbers were published. The S&P 500 fell by 1.5% and the NASDAQ composite fell by 2%.

The increase in imports of imports since 1972 outside of the economic disorders of Covid 19 villages reverse reverse in the second quarter and eliminate weight on GDP. For this reason, Paul Ashworth from Capital Economics predicts that growth will recover from a profit of 2% from April to June.

Commercial deficits reduce GDP. But that is mainly a question of mathematics. GDP should only count what is produced in Germany. Therefore, imports that the government as consumer expenditure in the GDP report counts, for example, if they buy Swiss chocolate, to prevent them from artificially inflating the domestic production.

And other aspects of the GDP report on Wednesday indicated that the economy looked solid at the beginning of the year.

A category within the GDP data that measures the underlying strength of the economy rose from January to March with a healthy annual price of 3%, compared to 2.9% in the fourth quarter of 2024. This category includes consumer expenses and private investments, but excludes volatile objects such as exports, inventories and government spending.

Nevertheless, many economists say that Trump's massive import taxes – the unpredictable way he triggered it – impair growth in the second half of the year and that the recession risks will increase.

“We believe that the downturn in the economy in the second half of this year will worsen,” wrote Carl Weinberg, chief economist in a high frequency economy.

The Wednesday report also showed a rise in prices that will probably fear the Federal Reserve, which is still trying to cool inflation after a difficult pandemic advance. The favorite inflation indicator of the FED – personal consumption expenditure or PCE, price index – rose with an annual rate of 3.6% compared to 2.4% in the fourth quarter. With the exception of volatile food and energy prices, the so-called core PC inflation registered 3.5% compared to 2.6% compared to October to December. The central bank wants to see inflation with 2%.

The GDP numbers in the first quarter “underline the bond in which the Federal Reserve is located,” wrote Ryan Sweet from Oxford Economics in a comment. The FED must weigh whether the interest rates should be reduced to support economic growth or to leave the interest up due to an increased inflation. “The economy was essentially stagnated in the first three months of the year, while the growth of headlines and core inflation accelerated and promoted concerns about stagflation. ''

Trump inherited a solid economy that, despite high interest rates that the FED imposed in 2022 and 2023, steadily grown to combat inflation. His irregular trade policy – including 145% tariffs for China – paralyzed companies and threatened to increase prices and violate consumers.

The Democrats quickly accused Trump of disturbing solid economic growth for several years. The democratic Senator Elizabeth Warren from Massachusetts said: “100 days after his presidency, Donald Trump's red light, Green-Light tariffs, shrinking our economy, and companies attach the imports in expectation of the tariff-doubleday.”

There is potential indications that the solid labor market, a pillar of the US economy during the Pandemic recession, can weaken.

On Wednesday, the salary billing provider ADP reported that companies were only added to 62,000 jobs in April, about half of the expected, and less than 147,000 in March. This could be a signal that companies may pursue a cautious setting when setting uncertainties on tariffs. Nevertheless, the ADP numbers often turn away from the government's workplaces that arrive on Friday.

Employers in the areas of education and health, information technology as well as business and professional services reduce all jobs. Business and professional services include sectors such as engineering, accounting and advertising.

“Unpainting is the word of the day,” said Nela Richardson, chief economist at ADP. “It can be difficult to make hiring decisions in such an environment.”