The US economy just had its worst quarter since 2022 as President Donald Trump’s significant policy changes unnerved consumers and businesses.

Gross domestic product, which measures all the goods and services produced in the economy, registered at an annualized rate of -0.3% in the first quarter, the Commerce Department said Wednesday.

That’s a sharp slowdown from the fourth quarter’s 2.4% rate, and much worse than the 0.8% rate economists projected. GDP is adjusted for seasonal swings and inflation.

US stocks dropped after the GDP report was released.

The Trump administration has been on a chaotic tariff spree over the past several months, escalating trade tensions with China and unsettling Americans. Most economists say Trump’s monumental bid to reshape global trade is likely to send inflation climbing in the United States and even trigger a recession.

The president, however, deflected blame from the weak figures reflected in the first economic report card of his second term.

“Our Country will boom, but we have to get rid of the Biden ‘Overhang.’” he wrote Wednesday in a post on social media. “This will take a while, has NOTHING TO DO WITH TARIFFS, only that he left us with bad numbers, but when the boom begins, it will be like no other. BE PATIENT!!!”

During a Cabinet meeting Wednesday, Trump reiterated that stance: “That’s Biden, that’s not Trump.”

The economy’s decline in the beginning of the year was driven by a wider trade deficit — a result of Americans front-running purchases to beat Trump’s tariffs — and cutbacks in government spending, according to a release. Imports skyrocketed from -1.9% in the fourth quarter to 41.3% in the first three months of the year. Meanwhile, exports registered at a 1.8% rate.

When imports exceed exports, that subtracts from GDP and that was by far the biggest drag on growth in the first quarter. The difference between imports and exports subtracted from GDP by the most on records going back to 1947.

Trump’s top trade adviser, Peter Navarro, called the GDP report “the best negative print I have ever seen in my life.”

“The markets need to look beneath the surface,” Navarro said Wednesday in a CNBC interview, pointing to the sharp increase in domestic investment last quarter. However, much of that came from businesses increasing their inventories ahead of tariffs, the Commerce Department said.

Details from the report

There were several signs of weakness in the first GDP report of Trump’s second term, but it wasn’t all doom and gloom.

Consumer spending, which powers about 70% of the US economy, slowed sharply in the first quarter to a 1.8% rate, down considerably from 4% in the prior three-month period. That slowdown was largely due to Americans cutting their spending on goods, and was the weakest rate since mid-2023.

Government spending also weighed on the economy, with federal outlays dropping to -5.1% from 4% during the same period.

Meanwhile, businesses actually stepped up their spending, likely to get ahead of any expected price increases stemming from Trump’s tariffs. Business investment in the first quarter expanded at a 9.8% rate, up sharply from -3% in the fourth quarter. Gross private domestic investment was 21.9% in the January-through-March period, the highest rate since late 2021.

Stephen Miran, chair of the White House’s Council of Economic Advisers, told CNN’s Pamela Brown that the uptick in business investment is “not what firms do when they’re concerned about the economic outlook.”

In a shred of goods news, final sales to private domestic purchasers — a key gauge of underlying demand in the economy — accelerated to 3% in the first quarter from 2.9% in the fourth quarter.

The White House pointed to that figure as a sign of “strong underlying economic momentum that occurred after President Trump’s inauguration.”

“It’s no surprise the leftovers of Biden’s economic disaster have been a drag on economic growth, but the underlying numbers tell the real story of the strong momentum President Trump is delivering,” Trump’s press secretary, Karoline Leavitt, said in a statement. She added that economic developments over the past few months are “fueling an economic boom and setting the stage for unprecedented growth as President Trump ushers in the new Golden Age.”

Wednesday’s report also showed that inflation took a sharper than expected upswing during the first quarter. The Personal Consumption Expenditures price index rose an estimated 3.6% for the quarter, up from 2.4% during the fourth quarter, according to the report. Excluding food and energy prices, the core PCE index increased 3.5% versus 2.6% the quarter before.

We can’t call it a recession yet

While the latest GDP report points to a much weaker economy compared to last year, that doesn’t necessarily mean Americans are in the throes of a recession just yet.

A recession is technically defined as a broad-based contraction in the economy — encompassing the labor market, consumer spending, industrial activity and business investment — that lasts for more than a few months. And even though it may feel like there is a recession, according to polls and surveys, the economy remains in good shape on a few important fronts.

Unemployment remains relatively low — 4.2% as of March — businesses are continuing to invest in their operations and consumers haven’t retreated with their spending in any meaningful way just yet, government data shows.

Still, the economy can quickly take a turn for the worse, especially if Trump ups the ante on his tariff blitz.

“I don’t think we can call a recession from this data right now but it is a sign that we’re on this razor-thin edge where the longer the tariffs remain in place the more likely we are headed for an economic downturn,” Gregory Daco, chief economist at Ernst & Young, told CNN’s Matt Egan.

A separate report released Wednesday showed a precipitous drop-off in hiring by businesses in the US private sector, which doesn’t bode well for economic growth in the future.

Employers added just 62,000 jobs in April, according to payroll company ADP’s latest monthly report released Wednesday morning. That’s well below the 147,000 jobs added in March.

“Unease is the word of the day. Employers are trying to reconcile policy and consumer uncertainty with a run of mostly positive economic data,” Nela Richardson, chief economist at ADP, said in a statement. “It can be difficult to make hiring decisions in such an environment.”

A rule of thumb for defining a recession is two consecutive quarters of negative GDP, which hasn’t happened yet. The National Bureau of Economic Research is the official recession arbiter, though the group’s call can come many months after a recession has officially started.

The last time the US economy was in a recession was in 2020, which lasted just two months and was spurred by the Covid-19 pandemic. Before that, it was the Great Recession, which lasted from December 2007 through June 2009 and was the most severe economic downturn since the Great Depression.

(Source: CNN)