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CNN
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The US economy is contracting faster than expected. Is it a recession?
Maybe. For a variety of reasons, we can’t start bandying the R-word around just yet. But what we can do is step back, look at the data, and — in my very technical analysis — run a vibe check.
The upshot: It feels like we’ve got a lot of recession energy.
On Wednesday, government data showed economic growth contracting for the first time in three years. Gross domestic product, which measures all the goods and services produced in the economy, fell in the first three months of the year at an annualized rate of 0.3% — a much sharper decline than most economists predicted. It’s also a stark decline from the quarter before, when the economy expanded by 2.4%.
Let’s look at it in terms of purple bars (good) and yellow bars (bad).
After the past couple of years with roughly 3% annualized GDP growth (look at all those purple bars above), the first-quarter contraction is a big red flag — or in this case, a yellow bar — in a vast field of red flags that have been cropping up from sea to shining sea under President Donald Trump.
While Trump was quick to shrug off Wall Street’s negative reaction to the GDP contraction — he called it, nonsensically, Joe Biden’s “overhang” — it is impossible to separate the data from his radical tariff plans and the supply chain upheaval they’ve created.
The data captures activity between January 1 and March 31, which includes the president’s initial tariffs against America’s two closest trading partners, Mexico and Canada, as well as the deep anxiety that was building in anticipation of his April 2 slate of “Liberation Day” tariffs.
Within that time, consumer spending growth — the primary engine of the US economy — fell to a rate of 1.8%, down considerably from 4% in the prior three-month period.
By that measure, it was a “moderate quarter,” wrote Justin Wolfers, economics professor at the University of Michigan, on social media Wednesday. “Not recessionary; not great.”
And then there was the DOGE effect: Federal government spending went from 4% growth at the end of the Biden administration to a 5.1% contraction under Trump. That might be a good thing from a certain ideological perspective, but definitely hits the economy no matter what your politics are.
Meanwhile, inflation rose at an estimated pace of 3.6% for the quarter, up from 2.4% during the fourth quarter, as measured by the Federal Reserve’s preferred gauge of price increases, the Personal Consumption Expenditures price index. (The monthly PCE report, also released Wednesday, showed prices rose 2.3% in March from a year earlier, and were mostly flat from February to March.)
All of those numbers, like Trump’s 100-day polling figures, signal that Americans aren’t loving the vibe. And the vibes matter: As my colleague Matt Egan wrote this week, recessions tend to come to life when enough people expect them to.
The economy is weakening, certainly. But the official definition of a recession in the United States (yes, other countries have different definitions, because economics is a squishy field) is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
Rule of thumb: You need to have at least two quarters of back-to-back contractions in GDP to meet the standard set by the National Bureau of Economic Research, a private nonprofit organization that is the official arbiter of American recession-ology.
And even with two negative quarters, there are some other factors that go into the calculation, such as how sharp the decline is, how long it lasts, and how widespread it’s felt across the economy. (My colleague Alicia Wallace has more on all that here.)
Back in 2022, we actually had two consecutive quarters of contraction, but no recession. The second quarter was later revised (as they often are) when more data came in.
At that time, the momentary contraction reflected an economy lurching from one crisis (Covid) to another (inflation). Consumer demand was shifting from goods — like treadmills, TVs, cookware, all the tools of our various lockdown projects — to experiences (beach vacays, overseas flights, the Eras Tour). The contraction in GDP had more to do with lagging trade data than a true slowdown in economic activity.
So it’s possible the first quarter of 2025 is a blip, like the one we saw in 2022. But there are some key differences that make today a bit more worrying.
The economy was so hot in 2022 that it was… too hot. GDP growth at the end of 2021 was near 7%. Unemployment was the lowest it had been in a generation and companies were expanding rapidly, adding hundreds of thousands of jobs every single month. Consumers couldn’t stop spending money, even as inflation soared as high as 9.1% in June of 2022.
While the current labor market remains strong, it’s not expanding at the same feverish pace as it was then. Consumers have long blown through their pandemic savings and are beginning to pull back on expenditures like summer vacations and dinners out. And when they’re buying more appliances and electronic goods, it looks like they’re trying to get ahead of Trump’s trade war — like people stocking up on eggs, bread and milk before a hurricane, rather than stocking up for a party.
The biggest difference between then and now comes down to who’s in the White House.
It is difficult to overstate the real economic damage that’s already playing out in response to Trump’s tariffs and the haphazard way the White House has instituted them.
That kind of volatility, which has rattled financial markets and paralyzed businesses, simply wasn’t present under any other administration in history. But we’ll have to wait to find out exactly how much economic damage Trump has caused.
The second quarter’s data, from April to June, will capture the full impact of Trump’s extreme 145% tariff on China and 10% baseline tariff on the rest of the world.
Bottom line: The vibes are off. And the data is getting ugly, making a recession much more likely. There will be pain that Trump can’t undo, even if he were to remove all the new tariffs he’s put in place. But how long the pain lasts depends entirely on how long the tariffs, especially on China, remain in place.
