The U.S. economy is flashing warning signs, and recession fears are rising fast. In the first quarter of 2025, America’s gross domestic product fell 0.3%—the first contraction in three years. The drop comes amid sweeping import tariffs imposed by President Donald Trump, sending stock markets sliding and consumer confidence to its lowest point since the COVID-19 pandemic.
GDP contracts as trade war escalates
Data from the Commerce Department shows a sharp shift from 2.4% growth in late 2024 to a 0.3% contraction in early 2025. While the quarter covers both the end of Joe Biden’s presidency and Trump’s first months in office, the economic decline closely aligns with Trump’s new trade policies.
The White House levied 10% tariffs on nearly all imports, including 145% duties on Chinese goods. The result: a massive surge in imports before the tariffs took effect, which dragged down net GDP. Trump insists the downturn is due to a “Biden Overhang,” denying tariffs played a role.
Still, economists say the numbers tell a different story.
Consumer confidence collapses
Spending slowed across the board. Personal consumption—America’s biggest economic engine—grew at just 1.8% in Q1, down from 3.8% the previous quarter. Retailers and small businesses are feeling the pressure.
According to the Conference Board, consumer confidence has dropped for five straight months. Its forward-looking index—used by economists to forecast recessions—is now below the warning threshold.
“Recession is about lost faith,” said Mark Zandi, chief economist at Moody’s Analytics. “People worry about their jobs, cut spending, and the cycle feeds itself.”
Markets react to economic uncertainty
The stock market responded swiftly. The S&P 500 is down 7.3% since Trump’s inauguration, and the Nasdaq has fallen 11%. That’s the worst performance for a new presidency since the 1970s. The U.S. dollar has also weakened nearly 10% in Trump’s first 100 days, an unusual drop that reflects investor fears over long-term economic stability.
“Investors no longer view the dollar as a safe haven,” said Steve Kamin, a former Federal Reserve economist. “They see U.S. policy as increasingly risky.”
Business owners divided on tariffs
Some industries support the tariffs. Tom Barr, a Michigan mold maker, said his company has received renewed interest from U.S. automakers looking to shift production domestically.
But others, like Curt Carpenter, who runs a furniture store in Boston, say the tariffs are crushing margins and deterring customers.
“We’re not losing sales to competitors,” Carpenter said. “We’re just losing sales, period.”
Are we in a recession?
Technically, a recession is defined by two consecutive quarters of negative growth. So far, only one quarter has contracted. But with consumer sentiment down, business investment mixed, and trade uncertainty high, the risk of a full recession is real.
Leading indicators—including forward-looking job market expectations and import volume distortions—suggest more volatility ahead. Analysts at AXA Investment Managers project GDP growth will slow to 1.6% this year and just 0.6% in 2026.
Global contrast: U.S. lags behind
While the U.S. economy shrank, several European countries posted growth in Q1 2025:
- Germany: +0.2%
- Italy: +0.3%
- Spain: +0.6%
- Eurozone overall: +0.4%
By contrast, America’s -0.3% annualized GDP drop places it near the bottom of the global leaderboard.
Bottom line: Tariffs, uncertainty, and falling confidence are driving fears of a “Trumpcession.” While the president claims the economy will boom soon, the data shows warning lights flashing red.
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