Washington (CNN) — The US economy has just recorded its worst quarter since 2022, as President Donald Trump’s major policy shifts unsettled both consumers and businesses.

Gross domestic product (GDP), which measures all the goods and services produced in the economy, contracted at an annualised rate of -0.3% in the first quarter, according to the US Commerce Department on Wednesday.

This marks a sharp slowdown from the 2.4% growth in the previous quarter and is significantly worse than economists’ projection of 0.8% growth. GDP figures are adjusted for seasonal variations and inflation.

US stock markets fell following the release of the GDP data.

Over the past several months, the Trump administration has embarked on a chaotic spree of tariff increases, heightening trade tensions with China and creating uncertainty among Americans. Most economists believe that President Trump’s ambitious attempt to overhaul global trade will likely push inflation higher and could even tip the US into a recession.

However, the President has distanced himself from the disappointing figures, which represent the first economic report of his second term.

“Our Country will boom, but we have to get rid of the Biden ‘Overhang,’” he wrote on social media on Wednesday. “This will take a while, has NOTHING TO DO WITH TARIFFS, only that he left us with bad numbers, but when the boom begins, it will be like no other. BE PATIENT!!!”

During a Cabinet meeting later that day, Mr. Trump reiterated the point: “That’s Biden, that’s not Trump.”

The economic contraction early in the year was primarily driven by a wider trade deficit, attributed to Americans rushing to purchase goods before tariffs were imposed, and reductions in government spending. Imports soared from -1.9% in the fourth quarter to 41.3% in the first quarter. Meanwhile, exports grew by just 1.8%.

A higher volume of imports relative to exports subtracts from GDP, and this was the largest drag on growth for any quarter on record since 1947.

Peter Navarro, Mr. Trump’s top trade adviser, called the GDP report “the best negative print I have ever seen in my life.”

“The markets need to look beneath the surface,” he said in an interview with CNBC, pointing to a surge in domestic investment. However, the Commerce Department noted that much of this increase stemmed from businesses stockpiling in anticipation of tariffs.

Details from the report

Although the first GDP report of Trump’s second term revealed signs of economic weakness, it was not entirely bleak.

Consumer spending, which accounts for around 70% of the US economy, slowed markedly to a 1.8% rate in the first quarter, down significantly from 4% in the previous quarter. This was largely due to reduced spending on goods and marks the slowest rate since mid-2023.

Government spending also dragged on growth, with federal expenditure falling by 5.1%, compared with a 4% increase previously.

In contrast, businesses stepped up spending, likely attempting to get ahead of anticipated price rises due to tariffs. Business investment surged at a 9.8% annualised rate, compared with a -3% decline in the prior quarter. Gross private domestic investment jumped to 21.9% — the highest since late 2021.

Stephen Miran, chair of the White House’s Council of Economic Advisers, told CNN that the rise in business investment is “not what firms do when they’re concerned about the economic outlook.”

One encouraging indicator was the rise in final sales to private domestic purchasers — a key measure of underlying demand, which increased to 3% in the first quarter, up from 2.9% in the fourth.

The White House pointed to this as evidence of “strong underlying economic momentum that occurred after President Trump’s inauguration.”

“It’s no surprise the leftovers of Biden’s economic disaster have been a drag on economic growth, but the underlying numbers tell the real story of the strong momentum President Trump is delivering,” said press secretary Karoline Leavitt. She added that recent economic trends are “fueling an economic boom and setting the stage for unprecedented growth as President Trump ushers in the new Golden Age.”

Wednesday’s report also showed that inflation accelerated faster than expected in the first quarter. The Personal Consumption Expenditures (PCE) price index rose by an estimated 3.6%, up from 2.4% in the previous quarter. Core PCE, which excludes food and energy, rose by 3.5%, up from 2.6%.

We can’t call it a recession yet

While the latest GDP figures reflect a much weaker economy compared with last year, that doesn’t necessarily mean the US is in recession.

A recession is generally defined as a broad-based economic decline — affecting employment, consumer spending, industrial activity and business investment — that lasts for several months. And although many Americans feel as if one is underway, official data shows the economy is still holding up in key areas.

Unemployment remains relatively low, at 4.2% as of March — businesses continue to invest, and consumer spending hasn’t collapsed.

Still, the economy remains vulnerable, particularly if President Trump intensifies his tariff measures.

“I don’t think we can call a recession from this data right now, but it is a sign that we’re on this razor-thin edge where the longer the tariffs remain in place the more likely we are headed for an economic downturn,” said Gregory Daco, chief economist at Ernst & Young.

Adding to the concern, a separate report released on Wednesday showed a significant slowdown in hiring in the private sector. Employers added just 62,000 jobs in April, according to payroll processor ADP — well below March’s figure of 147,000.

“Unease is the word of the day. Employers are trying to reconcile policy and consumer uncertainty with a run of mostly positive economic data,” said Nela Richardson, chief economist at ADP. “It can be difficult to make hiring decisions in such an environment.”

A common rule of thumb for defining a recession is two consecutive quarters of negative GDP growth, which hasn’t occurred yet. The National Bureau of Economic Research, the official body responsible for declaring recessions in the US, may not issue a determination until well after one has begun.

The last recession in the United States was a short, two-month downturn in 2020 triggered by the COVID-19 pandemic. Prior to that, the country faced the Great Recession from December 2007 to June 2009, the most severe economic downturn since the Great Depression.