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Washington
CNN
—
The US economy contracted in the beginning of the year at a much faster pace than previously reported, after new data factored in much weaker consumer spending.
Gross domestic product, the broadest measure of economic output, registered an annualized rate of -0.5% from January through March, the Commerce Department said Thursday in its third and final estimate. That’s worse than the 0.2% decline reported in the second estimate. GDP is adjusted for seasonal swings and inflation.
The latest estimate showed that consumer spending — the lifeblood of the US economy — was tepid in the beginning of the year. Spending in the first quarter grew at a rate of just 0.5%, down from 1.2% in an earlier estimate. That’s the weakest rate in more than four years.
The first quarter’s decline in GDP was attributed to a massive trade deficit as American businesses rushed to stock up on imports to get ahead of President Donald Trump’s stiff tariffs. The third estimate revised imports down, but they still greatly exceeded exports, which subtracted from GDP.
A deluge of economic data released Thursday, albeit backward looking, provides a clearer picture how the US economy has fared in the face of Trump’s massive policy shifts, which in addition to new GDP data, also includes fresh figures on durable goods, new applications for unemployment benefits, and mortgage rates.
“Thursday’s GDP is backward looking and stocks already priced in the economic weakness caused by the tariffs during their decline in early April,” Paul Stanley, chief investment officer, Granite Bay Wealth Management, wrote in commentary issued Thursday. “Now, with stocks back at record highs, the market is looking ahead and pricing in an environment where tariffs are lower and that companies will be able to adapt and navigate tariffs.”
More front-running to beat tariffs and a harder time find a job
Overall, the latest economic numbers continue to show how tariff fears are weighing on the world’s largest economy as key drivers of growth — the labor market and spending — have lost some momentum.
A separate report showed that unemployed Americans are having an increasingly harder time finding work. Fresh data released Thursday morning by the Labor Department showed the number of people receiving jobless benefits for at least one week rose by 37,000 to 1.974 million, marking the highest total since November 6, 2021.
The Commerce Department separately reported on Thursday that new orders for US durable goods surged 16.4% last month, as business demand for transportation equipment ramped up sharply. The overall boost in orders last month came as China lowered tariffs on American exports from 125% to 10%, while the US lowered tariffs on Chinese exports from 145% to 30%.
New orders for non-defense capital goods excluding aircraft — a closely watched proxy for business investment — grew at a rate of 1.7% in May from the prior month, rebounding sharply from a 1.4% decline in April. That bodes well for economic growth in the second quarter, which will be reported next month.
But the latest figures likely don’t have much bearing for Federal Reserve officials, who are divided on whether the central bank should resume lowering interest rates next month.
“The revisions to GDP won’t have significant implications for the Federal Reserve as it’s backward looking. The Fed is focused on the inflation risks stemming from tariffs and the labor market,” Ryan Sweet, chief US economist at Oxford Economics, said in an analyst note Thursday. “If the Fed pivots and signals that it will cut rates earlier than we anticipate, with the next occurring in December, it will be because of the labor market, not GDP.”
This is a developing story and will be updated.
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