US GDP declines for first time since 2022 as tariffs impact now priced in
The U.S. economy contracted at an annual rate of 0.2% in the first quarter, according to the Bureau of Economic Analysis’ second estimate released Thursday.
Bitcoin fell slightly by 0.4% after the data was released, but remains strong above $108,000.
Inflation-adjusted final sales fell 2.9% as households trimmed spending to 1.2% growth. Goods purchases slipped into decline while services kept the headline positive. Tariff-driven imports subtracted nearly 1.5% points from gross domestic product, the report said.
Corporate profits dropped 3.6%, ending a two-year upswing. Equipment and structures investment were essentially flat, signaling that firms are starting to guard cash flows.
Labor Department data show initial jobless claims at 240,000 for the week ended May 24, with continuing claims rising to 1.919 million. The figures point to a gradual easing in hiring without a broad wave of layoffs.
Price gauges quickened even as activity slowed. The GDP price index climbed 3.7%, and core personal consumption expenditures prices advanced 3.4%, keeping both above the Federal Reserve’s 2% goal.
The mix of softer output and firm inflation leaves policymakers little room to lower rates. Futures markets still price a “higher for longer” stance until clearer labor slack and cooler prices emerge.
Bottom line
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Overall health: Weakening. Output contracted, demand slowed sharply, profits fell, and jobless claims are edging up.
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Inflation backdrop: Inflation is still too hot. Price gauges moved further above the Fed’s target, limiting room for near-term rate cuts.
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Policy implication: The Fed is likely to keep its “higher for longer” stance until it sees both cooler inflation and clearer labour-market slack.
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Forward look: High-frequency trackers (Atlanta Fed GDPNow at 2.2 % for Q2) point to a mild rebound, but that estimate has been slipping and could weaken further if layoffs broaden or tariffs bite again. Persistently soft consumer spending and falling profits raise the odds that today’s contraction is the first chapter of a longer slowdown rather than a one-off blip.
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