Tariff-forwarded imports impacted U.S. GDP, the Federal Reserve said.
The global economy started 2025 with more trade uncertainty. At the same time, growth began to slow. Tariff changes in the United States generated immediate responses in other countries. In addition, geopolitical tensions weakened business and consumer confidence. As a result, consumption moderated and investment fell.
For its part, the U.S. economy showed mixed signals. After solid growth, real GDP fell 2% in the first quarter of 2025.
Similarly, real gross domestic income, which measures the value of U.S. output from the income stream it generates, declined slightly in the first quarter after solid growth last year.
Tariff-forwarded imports
The slowdown in GDP in the first quarter is not just explained by lower federal government spending. In fact, the main factor was the historic increase in imports. This rebound suggests that households and businesses brought forward purchases from abroad in anticipation of new tariffs.
According to the Federal Reserve, imports are subtracted from total spending to measure only domestic value added. Therefore, although local production may have fallen, the jump in imports distorts the data. Thus, all indications are that real GDP growth was understated.
To clarify further: the Fed refers that, specifically, the total increase in inventories due to the increase in imports may not have been captured in the source inventory data.
In addition, the decline in GDP contrasts with other relevant indicators. The labor market showed steady growth. Industrial production also advanced at a good pace. Both sectors maintained a solid performance during the first quarter.
Record foreign purchases
Thus, the historical increase in imports, before the expected tariff increases, was partially offset by a rebound in measured inventories.
In contrast, domestic private final purchases grew moderately. Consumer spending rose modestly. And capital spending showed a slight rebound.
On the other hand, several domestic production highlights reflected solid performance. The labor market remained strong and manufacturing output grew in the first quarter. However, industry is showing signs of cooling.
In the housing sector, new home construction has slowed. Meanwhile, sales of existing homes remain low. Still-high mortgage rates are limiting the recovery.