The US economy recorded -0.5% annualized quarter-over-quarter growth in Q1 2025, marking the first negative growth in 12 quarters since Q1 2022. Primary factors were a surge in imports due to rush demand before tariff increases under the second Trump administration and slower personal consumption growth. Domestic private final demand (86% of GDP) maintained positive growth at +1.9% but fell below 2024s +3.0%.
【Personal Consumption Trends】 Real personal consumption expenditures have shown gradual growth since 2025. Durable goods consumption experienced volatility due to tariff-anticipating rush demand: increases in automobiles and recreational goods in November-December 2024, followed by declines in January 2025, renewed increases in March, and declines again in May. New vehicle sales reached 17.83 million units (annualized) in March and 17.26 million in April, exceeding the 2015-19 average of 17.24 million units, but dropped to 15.65 million units in May.
【Political Polarization in Consumer Sentiment】 Consumer sentiment has been clearly polarized by political party support since the Trump administration began. Democratic supporters experienced a decline of over 10 points in November 2024, with sharp decreases continuing through April 2025, while Republican supporters saw increases of over 15 points during the same period and have maintained an upward trend.
【Capital Investment and Labor Market】 Private fixed investment surged +10.3% annualized quarter-over-quarter in Q1 2025. Information and communication equipment investment particularly jumped +72.9% due to pre-tariff rush demand. In the labor market, hiring rates, separation rates, and layoff rates all remain below February 2020 levels, indicating generally balanced supply and demand. The unemployment rate remains stable near the FOMC participants long-term projection of 4.2%.
【Housing Market Turning Point】 The housing market is at a significant turning point. New and existing home inventory months reached 4.9 months in April 2025, the highest since November 2015, approaching the optimal 5-6 month range. The S&P Case-Shiller Home Price Index recorded -0.1% month-over-month in March 2025, the first decline since January 2023. Home sellers outnumber prospective buyers by approximately 500,000, representing the largest demand shortage since 2013.
【Monetary Policy】 The Fed implemented cumulative 1 percentage point rate cuts from September-December 2024, then maintained rates for four consecutive meetings since January 2025. The federal funds rate currently stands at 4.25-4.50%. A gradual 0.5 percentage point reduction is projected through end-2025, though uncertainty surrounding the long-term neutral rate has expanded.
These policy changes and economic indicator movements indicate that the US economy is in a structural transition period.