First Quarter Growth Revised Lower

 Financial FAQs

“Real gross domestic product (GDP) decreased at an annual rate of -0.5 percent in the first quarter of 2025 (January, February, and March), according to the third estimate released by the U.S. Bureau of Economic Analysis. In the fourth quarter of 2024, real GDP increased 2.4 percent.” BEA.GOV

We won’t know yet if we can stay out of a recession because first quarter GDP was revised downward in its final (third) estimate, but Americans have been stocking up on cheaper imports before the tariffs kick in, just in case.

Real GDP was revised down 0.3 percentage point from the second estimate (-0.2%), primarily because of downward revisions to consumer spending and exports. This was before the April 2 tariffs and retaliatory tariffs hit consumers.

But the final (third) revision of Q1 GDP showed inflation already rising because of the rush to buy before April 2. The price index for gross domestic purchases increased 3.4 percent in the first quarter, a revised +0.1 percentage point from the previous estimate. The personal consumption expenditures (PCE) price index increased 3.7 percent, and the PCE price index excluding food and energy increased 3.5 percent, both +0.1 percentage point higher than previously estimated.

So, what are consumers and businesses to do while waiting for the final outcome of the tariff wars? (If there will be a grand finale, that is.) Trump is using the tariffs to not only pay for the huge deficit that his Big Beautiful Tax bill will create, but as a way to bully other countries to do all manner of things, like get NATO to up its military spending, and China to import more U.S. exports.

The general consensus is that tariffs will ultimately end up being about 10 percent for most countries (30 percent for Chinese imports), up from 4 percent in recent history. The financial markets are rallying again because of Trump’s TACO (Trump Always Chickens Out) negotiating techniques—suddenly raising retaliatory tariffs, then cancelling them. It can’t prevent higher prices, since so much of what we consume is imported.

Things might look brighter for a while, like in the second quarter just coming to a close in June. The Atlanta Fed’s GDPNow estimate of second quarter growth is still holding at 3.4 percent because of continued investment in AI and other high-tech innovations in its most recent Nowcast. But we won’t first see the first estimate of second quarter GDP growth until July 30.

“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2025 is 3.4 percent on June 18, down from 3.5 percent on June 17. After this morning’s housing starts report from the US Census Bureau, the nowcast of second-quarter real residential fixed investment growth decreased from -2.8 percent to -4.4 percent.

Higher fixed investment is good for growth, of course, yet we are also seeing increases in weekly initial jobless claims that come close to Great Recession and COVID-19 pandemic numbers. The number of jobless workers collecting longer term unemployment benefits rose by 37,000 to 1.97 million, marking the highest level since November 2021.

That’s because much of the high-tech and AI investment will be replacing White-collar workers. We now must wait until July 30 before Q2 growth numbers come out from the Bureau of Economic Analysis. That’s a long time to wait these days, since so much can happen.

Stocks and bonds are rallying because corporate profits are higher, as well as the hope that TACO Trump won’t level any more retaliatory tariffs. The Foreign Trade Court has said the retaliatory tariffs aren’t legal. So maybe that’s what the markets are betting on—no more tariff increases. Most analysts are predicting the new 10 percent tariff level will shave approximately 1.5 percent from GDP growth this year, however.

Harlan Green © 2025

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