U.S. Economy Contracts by 0.3% in Q1 2025, Triggering Stock Market Decline and Inflation Concerns

The U.S. Commerce Department released a report on Wednesday indicating that the nation’s gross domestic product (GDP) contracted at an annual rate of 0.3% in the first quarter of 2025. This marks a shift from the 2.4% growth observed in the final quarter of 2024. The contraction in GDP, which represents the total value of goods and services produced, was primarily driven by a significant increase in imports, alongside signs of slowing in other sectors of the economy.

The release of the GDP data had an immediate impact on the stock market. The S&P 500 index fell by 93 points, or 1.7%, closing at 5,468. Similarly, the Dow Jones Industrial Average experienced a decline of 604 points, or 1.5%, while the Nasdaq Composite, known for its concentration of technology stocks, dropped by 2.4%. The downturn in the stock market reflects investor concerns following the news of the economic contraction.

In addition to the GDP figures, the report highlighted that inflation remained firm during the first quarter. This development contributed to an increase in government bond yields, indicating a decrease in demand for U.S. debt. The combination of economic contraction and persistent inflation presents challenges for policymakers as they navigate the current economic landscape.

Economists and market analysts have expressed concern over the negative GDP reading. Carl Weinberg, chief economist at High Frequency Economics, noted in a research note that equity traders are likely to be dissatisfied with the headline figure. As the first negative GDP reading since 2022, the report underscores the complexities facing the U.S. economy at the start of 2025.