US GDP Q1 2025 Contraction Warning

In the first quarter, the U.S. posted an advance estimate of real GDP. Gross Domestic Product fell by 0.3% Q/Q. Economists expected a +0.2% figure. This is a dramatic drop from the 2.4% growth recorded in Q4/2024.Unfortunately, imports surged ahead of the White House implementing tariffs on its trade partners. Consumers bought goods during this period to avoid the higher costs of duties. The Bureau of Economic Analysis also reported personal consumption expenditures. It rose by 1.8%, compared to the 4.0% increase in Q4/2024. This is the weakest increase since the third quarter of 2022.The weak GDP decreases the attractiveness of U.S. debt and its currency (UUP). It increases the odds of the Federal Reserve cutting interest rates to support the economy. The data also weakens the Trump Administration’s strength to negotiate better trading terms. Americans are importing more than they produce for export. Investors may anticipate that the third quarter, published in October, will worsen. By then, the GDP will exclude inventory “front running.” It would also realize the impact of ever-changing tariff policies introduced in April. As a result, calls to lower rates to stimulate the economy and introduce a fiscal stimulus would hurt the U.S. dollar. Investors may want to reduce their position in U.S. banks. Citigroup, Bank of America (BAC), JPMorgan (JPM), and Sells Fargo (WFC) would need to navigate through a slower economy.