MAY 5, 2025 – GDP FALLS IN Q1 WHILE HIRING RISES IN APRIL
Q1 2025 Gross Domestic Product fell at an annualized rate of 0.3 percent, largely due to a surge of imports before the tariffs came into effect. Imports were up 41.3 percent causing a temporary contraction in growth as imports are subtracted from the GDP. This was the first quarter of negative growth since Q1 2022, and well below economists’ expectations of a 0.4 percent increase. Other contributing factors to the drop off include a decline in government spending (down 5.1 percent for the quarter) and a slight slowdown in consumer spending.
Meanwhile, employers added 177,000 new jobs in April, above expectations of 133,000 jobs, while the unemployment rate held at 4.2 percent. The data is lagging, with the hiring decisions having been made in earlier months. This level of hiring is not expected to continue due to the instability in the market due to changing tariff positions which may have companies put a hold on future hiring. The DOGE cuts to government workers may not be reflected in the data until the end of the summer.
Negative growth in Q1 might have the Fed consider lowering rates, but the impact of the tariffs on inflation and the labor market is not yet clear. The Fed is meeting this week, where no changes to monetary policy are expected.