The U.S. economy contracted for the first time in three years to start off 2025. The BEA's second estimate of real gross domestic product showed economic growth decreased at an annual rate of 0.2% in Q1 2025. The latest estimate was higher than the -0.3% forecast and lower than the Q4 final estimate of 2.5%.
Here is the opening text from the Bureau of Economic Analysis news release:
Real gross domestic product (GDP) decreased at an annual rate of 0.2 percent in the first quarter of 2025 (January, February, and March), according to the second estimate released by the U.S. Bureau of Economic Analysis. In the fourth quarter of 2024, real GDP increased 2.4 percent. The decrease in real GDP in the first quarter primarily reflected an increase in imports, which are a subtraction in the calculation of GDP, and a decrease in government spending. These movements were partly offset by increases in investment, consumer spending, and exports..
Gross Domestic Product (GDP)
Real gross domestic product (GDP) measures how fast or slowly the economy is growing and measures the inflation-adjusted value of all goods and services produced by the economy. It is considered the broadest measure of economic activity and the primary indicator of an economy's health. The Bureaus of Economic Analysis (BEA) releases real GDP data on a monthly basis. There are 3 versions released a month apart, advance, second, and final, each incorporating data that was previously unavailable. Economists can use GDP to determine whether an economy is growing or experiencing a recession.
This chart presents the annualized percentage change in real (inflation-adjusted) gross domestic product from the preceding quarter, beginning in Q2 1947. Prior to that, GDP was calculated annually. To provide further context, the chart includes recessions as determined by the National Bureau of Economic Research (NBER), the historical average of 3.20%, and the current 10-year moving average of 2.61%. As the data clearly shows, the 10-year moving average fell below the historical average in 2007 and has remained there since, illustrating a significant slowdown in U.S. economic growth following the Great Recession. We are currently at a level below both the 10-year moving average and the series average, indicating the current economic growth is on the historically slower end.
The chart above has many interesting data points but can be quite overwhelming to look at. This next chart provides a simplified look over the past few years.
Here is a log-scale chart of real GDP with an exponential regression, which helps us understand growth cycles since the 1947 inception of quarterly GDP. The regression illustrates the fact that the current trend, since the Great Recession, has a visibly lower slope than the long-term trend. In fact, the current GDP is 13.0% below the pre-recession trend (2008).
A particularly telling representation of slowing growth in the US economy is the year-over-year rate of change. Beginning in 1947, the average year-over-year rate at the start of recessions is 3.2% with a range of 1.28% to 6.78%. The current year-over-year rate for real GDP is at 2.06%, a level at or below 9 of the 12 recession starts during this time frame.
GDP: A Look Ahead
In the chart below, we use the Conference Board's Economic Forecast for the U.S. Economy to visualize GDP forecast over the next few years.
May 15, 2025
Tariff Inflation to Temper Growth Despite Trade Deal Cheers
We estimate sizable shocks to growth, inflation, and employment in the coming months, even as the U.S. administration reached an agreement to significantly reduce tariffs on imports from China. The Conference Board estimates tariffs may substantially lower GDP growth , raise inflation, weaken the labor market, and prompt Fed rate cuts. The latest developments also suggest the Fed may cut rates only twice this year.
For a closer look at each of the subcomponents of GDP, check out our commentary An Inside Look at GDP.
For another perspective on GDP, check out our commentary Real GDP Per Capita.
Read more updates by Jen Nash
