US economy faces contraction: GDP down, dollar weakens
The United States Bureau of Economic Analysis has published an estimate regarding economic growth. The gross domestic product (GDP) of the United States in the first quarter of 2025 recorded a decline of 0.2% on an annual basis, which is an upward revision of 0.1 percentage point from the first estimate. The dollar reacted negatively, as did experts.
The decline in real GDP in the first quarter of 2025 was primarily caused by an increase in imports and a decrease in government spending. Imports, which are subtracted in the GDP calculation, significantly impacted the final result. The negative impact of these factors was partially offset by an increase in investments, consumer spending, and exports.
It is worth noting that this marks a significant change in trend compared to the fourth quarter of 2024, when the U.S. economy recorded a growth of 2.4%. The economic downturn was mainly due to a slowdown in consumer spending, which had previously driven economic growth, along with the aforementioned increase in imports and reduction in government spending.
Real final sales to private domestic purchasers, which account for the sum of consumer spending and gross private fixed investment, increased by 2.5% in the first quarter. However, this result is worse than the previous estimate, which was revised down by 0.5 percentage points.
Threat of recession. dollar reacts negatively
Piotr Bawolski, CFA from Michael / Ström Brokerage House, commented on the data, considering the latest reading a negative signal.
Although the revision of the GDP change forecast brought an improvement in expectations, we are still talking about a negative reading, which means a looming threat of a recession. This, along with a larger than expected increase in jobless claims, may provide the Fed with a significant signal supporting the decision to lower interest rates in the U.S.," he stated in a commentary sent to money.pl.
Inflationary pressure and income situation
The Gross Domestic Purchases Price Index increased by 3.3% in the first quarter, a downward revision of 0.1 percentage points from earlier estimates. The Personal Consumption Expenditures (PCE) Price Index reached 3.6%, remaining consistent with previous forecasts. This is a significant indicator for inflation, particularly closely watched by the U.S. Federal Reserve.
Excluding food and energy prices, the PCE Price Index increased by 3.4%, a downward revision of 0.1 percentage points. These data indicate sustained inflationary pressure in the American economy despite the slowdown in economic growth.
Real gross domestic income (GDI) fell by 0.2% in the first quarter of 2025, contrasting with an impressive increase of 5.2% recorded in the fourth quarter of 2024. This significant change indicates a deteriorating income situation in the American economy.
Profits from current production, which include inventory valuation adjustments and capital consumption, decreased by $118.1 billion in the first quarter. This is a drastic change compared to the increase of $204.7 billion recorded in the fourth quarter of 2024.
The Bureau of Economic Analysis announced that the third estimate of GDP and revised data on corporate profits and GDP by industry for the first quarter of 2025 will be released on June 26, 2025, at 8:30 AM ET.
