US GDP Growth Slows to 1.6% in Q1 2025 as Consumer Spending Moderates

US Economy Downshifts in Q1: What the GDP Report Tells Us

The US Bureau of Economic Analysis reported that real gross domestic product grew at an annualized rate of 1.6% in the first quarter of 2025 — below the 2.4% Wall Street consensus and a significant step down from 3.4% growth in Q4 2024.

The Import Surge Distorted the Headline

The single largest drag on the print was a surge in imports, which subtract from GDP calculations. Businesses accelerated import orders ahead of anticipated tariff increases, pulling forward demand that will be absent in Q2. Stripping out the net trade contribution, final domestic demand actually grew at a healthy 2.8% pace.

Consumer Spending: Cooling But Not Cold

Personal consumption expenditures grew 2.5%, down from 3.3% in Q4. Goods spending contracted, weighed down by durable goods (particularly motor vehicles as auto loan rates remain elevated). Services spending held up, led by healthcare and housing.

Business Investment: Mixed Picture

Nonresidential fixed investment rose 2.9%, with a strong showing in equipment and intellectual property products. Residential investment contracted 1.5%, reflecting the ongoing affordability crisis in housing despite mortgage rates dipping slightly to 6.7%.

Government Spending Boosts

Federal government spending grew 5.1% — the strongest quarter in two years — driven by defense contracts and infrastructure outlays. State and local government spending added another 0.4 percentage points to growth.

The Growth Outlook: Stagflation Lite?

Economists are divided. Bears argue the combination of decelerating growth and sticky inflation (stagflation lite) limits the Fed's ability to respond. Bulls point to strong corporate earnings, a resilient labor market, and the likelihood that the import surge reverses in Q2, potentially boosting the next GDP print.

The Atlanta Fed's GDPNow model projects Q2 2025 growth at 2.1%.