<div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>The US economy shrank at a 0.5 per cent annual pace from January through March as </span><a href="https://www.9news.com.au/world/elon-musk-donald-trump-fighting-again-doge-investigation-big-beautiful-bill/7967c32b-2ea2-4077-8d58-d209afaa3efd" rel="" target="" title="President Donald Trump"><span>President Donald Trump</span></a><span>'s trade wars disrupted business, the Commerce Department reported in an unexpected deterioration of earlier estimates.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>First-quarter growth was weighed down by a surge of imports as US companies, and households, rushed to buy foreign goods before Trump could impose tariffs on them. </span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>The Commerce Department previously estimated that the economy fell 0.2 per cent in the first quarter. Economists had forecast no change in the department's third and final estimate.</span></div></div><div><div id="adspot-mobile-medium"></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><strong><span>READ MORE:</span></strong><span> </span><a href="https://www.9news.com.au/world/elon-musk-donald-trump-fighting-again-doge-investigation-big-beautiful-bill/7967c32b-2ea2-4077-8d58-d209afaa3efd" target="_blank"><strong><span>Trump admits he'll 'take a look' at deporting Musk</span></strong></a></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>The January-March drop in gross domestic product — the nation's output of goods and services — reversed a 2.4 per cent increase in the last three months of 2024 and marked the first time in three years that the economy contracted. </span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>Imports expanded 37.9 per cent, fastest since 2020, and pushed GDP down by nearly 4.7 percentage points.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>Consumer spending also slowed sharply, expanding just 0.5 per cent, down from a robust 4 per cent in the fourth-quarter of last year. </span></div></div><div><div class="OUTBRAIN" data-reactroot="" data-src="//www.9news.com.au/world/us-economy-shrank-05-in-the-first-quarter-worse-than-earlier-estimates-had-revealed/57af0f15-eba4-4865-8eaf-7cd54fa93482" data-widget-id="AR_5"></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>It is a significant downgrade from the Commerce Department's previous estimate.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>Consumers have turned jittery since Trump started plastering big taxes on imports, anticipating that the tariffs will impact their finances directly.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>And the Conference Board reported this week that Australians' view of the US economy worsened in June, resuming a downward slide that had dragged consumer confidence in April to its lowest level since the COVID-19 pandemic five years ago.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>The Conference Board said that its consumer confidence index slid to 93 in June, down 5.4 points from 98.4 last month. </span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>A measure of Australians' short-term expectations for their income, business conditions and the job market fell 4.6 points to 69. That's well below 80, the marker that can signal a recession ahead.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>Former Federal Reserve economist Claudia Sahm said "the downward revision to consumer spending today is a potential red flag". </span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>Sahm, now chief economist at New Century Advisors, noted that Commerce downgraded spending on recreation services and foreign travel — which could have reflect "great consumer pessimism and uncertainty".</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>A category within the GDP data that measures the economy's underlying strength rose at a 1.9 per cent annual rate from January through March. </span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>It's a decent number, but down from 2.9 per cent in the fourth quarter of 2024 and from the Commerce Department's previous estimate of 2.5 per cent January-March growth.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>This category includes consumer spending and private investment but excludes volatile items like exports, inventories and government spending.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>And federal government spending fell at a 4.6 per cent annual pace, the biggest drop since 2022.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>In another sign that Trump's policies are disrupting trade,</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>Trade deficits reduce GDP. But that's just a matter of mathematics. </span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>GDP is supposed to count only what's produced domestically, not stuff that comes in from abroad. </span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>So imports — which show up in the GDP report as consumer spending or business investment — have to be subtracted out to keep them from artificially inflating domestic production.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>The first-quarter import influx likely won't be repeated in the April-June quarter and therefore shouldn't weigh on GDP. </span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>In fact, economists expect second-quarter growth to bounce back to 3 per cent in the second quarter, according to a survey of forecasters by the data firm FactSet.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><span>The first look at April-June GDP growth is due July 30.</span></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><strong><span>READ MORE:</span></strong><span> </span><a href="https://www.9news.com.au/national/tax-return-2025-when-is-the-best-time-to-lodge-refund-explained/85b8c807-ea2a-4037-ac3a-c6dfdab2d381" target="_blank"><strong><span>When is the best time to lodge your tax return? Three experts reveal the 'sweet spot'</span></strong></a></div></div><div class="block-content"><div class="styles__Container-sc-1ylecsg-0 goULFa"><a href="https://www.9news.com.au/national/how-to-follow-9news-digital/29855bb1-ad3d-4c38-bc25-3cb52af1216f" target="_blank"><strong><em><span>DOWNLOAD THE 9NEWS APP</span></em></strong></a><strong><em><span>: Stay across all the latest in breaking news, sport, politics and the weather via our news app and get notifications sent straight to your smartphone. Available on the</span></em></strong><span> </span><a href="https://apps.apple.com/au/app/9news/id1010533727" target="_blank"><strong><em><span>Apple App Store</span></em></strong></a><span> </span><strong><em><span>and</span></em></strong><span> </span><a href="https://play.google.com/store/apps/details?id=nineNewsAlerts.nine.com&amp;hl=en_AU&amp;pli=1" target="_blank"><strong><em><span>Google Play</span></em></strong></a><strong><em><span>.</span></em></strong></div></div>