US economy's first-quarter decline revised to 0.2% from 0.3%

Bloomberg

A revision of data showed that the U.S. economy did shrink at the start of the year, although not as much as initially anticipated, with weaker consumer spending and greater imports reported.

Gross domestic product decreased at a 0.2% annualized pace in the first quarter, the second estimate from the Bureau of Economic Analysis showed Thursday. That compared with an initially reported 0.3% decline.

The economy's primary growth engine — consumer spending — advanced 1.2%, compared with an initial estimate of 1.8%. Net exports subtracted 4.9 percentage points, slightly more than the first projection.

The slight upward revision in GDP reflected stronger business investment and a greater accumulation of inventories. Federal government spending wasn't as much of a drag as originally reported.

GDP figures are revised multiple times as more data become available, enabling the government to fine-tune its estimate. The first projection, released in late April, showed the economy contracted for the first time since 2022. The final estimate is due next month.

Economic growth was dragged down at the start of the year by a surge in imports as U.S. businesses tried to get ahead of President Donald Trump's tariffs. More moderate consumer spending, as well as a decline in federal government spending, also weighed on the figure.

Since then, the White House has walked back or delayed some of the more punitive levies, and most of the tariffs have been blocked by a U.S. trade court. While the pauses have helped calm Americans' concerns about the economy and prompted many economists to scrap their recession calls, tariff rates are still substantially higher than before Trump took office. 

Forecasters largely expect GDP to rebound in the second quarter as higher duties discourage imports, and the goods already brought in will accumulate in larger inventories that add to growth. Beyond that, economists and policymakers will be paying close attention to how Trump's policies — including trade, but also immigration and taxation — will impact consumer and business spending going forward.

Federal Reserve officials were split about the potential inflationary impact of higher tariff rates during the central bank's monetary policy meeting last month.

Some members of the Federal Open Market Committee voiced concern that elevated import taxes could result in supply chain disruptions that lead to "persistent effects on inflation, reminiscent of such effects during the pandemic," according to minutes released Wednesday afternoon. Others believed the price-level impact of tariffs would be limited, pointing to a weakening U.S. economy, lower aggregate demand for goods as a result of the crackdown on immigration and "less tolerance for price increases by households." 

Some participants also expressed optimism that negotiations would lower the impact of the Trump administration's trade policies, even though the discussion — which took place on May 6 and 7 — predated the U.S. trade deal announcement with the U.K. and the temporary pause on reciprocal tariffs with China. 

Fed Gov. Michael Barr said in remarks at a May 15 event that the tariffs could weigh heaviest on small businesses, which often lack alternative sources for inputs and goods. Widespread disruption to small businesses could have substantial ripple effects, he added.

—Kyle Campbell contributed to this article.