Economic shrink sparks recession fears, but don’t start freaking out just yet…

The U.S. economy shrank by .3 percent during the first quarter of 2025, though this isn’t necessarily the end of the world.

For starters, this does admittedly mark a huge change from the previous quarter, when GDP rose by 2.4 percent.

But this news does come amid the backdrop of a massive trade war launched by President Donald Trump. Also, it doesn’t include the massive spending that’s been occurring ahead of the tariffs Trump has imposed, particularly on China.

“US consumers have been racing to buy foreign-made goods ahead of the 10 percent tariffs, which are expected to drive up prices and squeeze household budgets,” the Daily Mail notes. “But purchases of imported items don’t boost GDP, meaning some recent spending isn’t reflected in the numbers.”

The bad news is that if things don’t turn around, the economy could potentially slide into a recession.

Q1 GDP: -0.3%

First quarterly contraction since 2022

If things don’t turn around in Q2, Trump will start his second term with a recession. pic.twitter.com/w7tNwcTP6O

— Geiger Capital (@Geiger_Capital) April 30, 2025

The good news, meanwhile, is that, according to Grok, this decline in GDP  and the subsequent reaction from the markets are likely not going to be permanent.

“The stock market fell, fearing economic weakness and tariff uncertainties, with indices like the S&P 500 dropping,” Grok notes. “This reaction might be an overreaction, as the GDP dip seems temporary—imports surged ahead of tariffs, and consumer spending remains strong. While the market is pricing in a recession, the data suggests this may be premature, though future quarters will tell.”

The Q1 2025 GDP growth was -0.3%, driven by a sharp rise in imports (-4.83% impact) due to tariff frontrunning and a drop in government spending (-0.25%). Consumer spending (+1.21%) and investment (+1.34%) provided some offset, but the negative headline spooked investors.

The…

— Grok (@grok) April 30, 2025

How strong is consumer spending?

“Spending through the first 15 days in April climbed about 3.8% from the same period a year ago,” CNBC notes. “Spending in March increased about 2.7% from the comparable month a year ago.”

“April data may reflect a pullforward of discretionary spending on big-ticket items if consumers tried to lock in lower prices before tariffs went into effect,” according to JPMorgan analyst Richard Shane.

Businesses likewise have been spending money to stock up on goods before the most severe of Trump’s tariffs hit.

“Shippers have front-loaded cargo heading to the U.S. to get ahead of any potential increase in taxes as a result of the tariffs,” as noted by CNBC. “Products from China, which face a cumulative tariff rate of 145%, accounted for much of the cargo that shippers were sending to the U.S. earlier than planned.”

There’s more good news.

Peter Tarr, a market expert, notes that GDP isn’t that reliable because it “contains a lot of noise.” He argues that a better assessment of the economy can be obtained by looking at real final sales.

GDP contains a lot of noise. It counts inventory, government spending etc. A lot of distortions at present.

➡️Real final sales : private domestic purchasers is a cleaner gauge of economy and it is currently steady with a slight uptick.

See chart. pic.twitter.com/koDJPh7Dvv

— Peter Tarr (@ProfitsTaken) April 30, 2025

Dan Greenhaus, a former CNBC contributor, has made the same case.

“[I]f we look at underlying GDP measures, real final sales to domestic purchasers, which excludes inventories and trade etc, grew by 3.0% which isn’t amzing but is pretty darn good,” he tweeted Wednesday morning. “This is the ‘right’ way to look at this report.”

Look:

I realize I’m veering into Pollyanna territory but if we look at underlying GDP measures, real final sales to domestic purchasers, which excludes inventories and trade etc, grew by 3.0% which isn’t amzing but is pretty darn good. This is the “right” way to look at this report. pic.twitter.com/wBmhgfHOwO

— Dan Greenhaus (@DanGreenhaus) April 30, 2025

President Trump, for his part, has blamed the poor GDP and stock market drop on his predecessor, former President Joe Biden.

“This is Biden’s Stock Market, not Trump’s,” he wrote in a Truth Social post Wednesday morning. “I didn’t take over until January 20th. Tariffs will soon start kicking in, and companies are starting to move into the USA in record numbers.”

“Our Country will boom, but we have to get rid of the Biden “Overhang.” 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!!!” he added.

Senior Staff Writer
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V. Saxena is a staff writer for BizPac Review with a decade of experience as a professional writer, and a lifetime of experience as an avid news junkie. He holds a degree in computer technology from Purdue University.

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