The US Bureau of Economic Analysis announced that the US economy contracted in the first quarter of 2025. This was the third and final reading of US gross domestic product growth. On the face of it, the contraction wasn’t positive for the US. However, economic activity was relatively healthy over the quarter; the decline came in response to a sharp increase in imports due to tariffs. Still, uncertainty about the US economy persists amid ongoing trade tensions and escalating geopolitical tensions.

• The US economy shrank at an annualized pace of 0.5% over the first quarter of 2025. This marked its first contraction since the second quarter of 2022. The second estimate had shown a 0.2% decline.
• A sharp increase in imports pushed down net exports, which weighed significantly on growth over the quarter. Imports increased by 37.9%. Domestic companies and households frontloaded foreign purchases ahead of expected tariffs. Exports also increased, but only by 0.4%.
• Household spending increased over the quarter, albeit at a relatively modest pace. Consumer confidence weakened amid trade and economic uncertainty, which hindered spending.
• Business investment also increased over the quarter, positively contributing to overall economic activity.
• Despite the contraction, the US Federal Reserve Board noted that economic conditions remain relatively solid. The underlying data was muddled by the rise in imports in response to tariffs.

Like most other countries right now, there’s a high degree of uncertainty in the US economy, with geopolitical tensions and trade disruptions weighing on the outlook. As the world’s largest economy, the performance of the US economy helps dictate overall global economic conditions. Canada’s economy is highly dependent on the US, but the onset of trade tensions has pushed Prime Minister Mark Carney into looking to transform Canada’s economy and be less dependent on the US.

If you would like to discuss this economic and market update or have questions about your finances and investments, please feel free to contact me anytime.