Surge in imports results in slight contraction of U.S. GDP; regional economic indicators mixed

U.S. real gross domestic product contracted slightly as the seasonally adjusted annual growth rate dipped to 0.2% in the first quarter of 2025, down from a revised 2.4% in the last quarter of 2024. The contraction was mostly the result of a sudden increase in imports as firms tried to bring in goods to the U.S. ahead of the expected tariffs. Consumer spending weakened slightly, and investment in new capital by businesses was strong. The question now is whether consumer and business spending will continue to boost the economy once additional tariffs, many of which are currently paused, go into effect. Most aspects of the national economy remain quite strong, yet uncertainty over trade policy increases the risk that business and consumers pause their spending long enough to slow down growth. Inflation remains a concern, keeping interest rates elevated and posing further risks for growth.

As we reported last quarter, Midwest economic performance continues to lag the U.S., though improvement was seen on some fronts, particularly in the labor market. Other state-level indicators for both Iowa and Illinois declined over the quarter. Local job numbers remain below levels from a year ago, but after seasonal adjustment, payroll employment improved slightly over last quarter. Unemployment, while elevated over last year, remains under 5% in most local counties. In our Business Outlook Survey, respondents were more optimistic about their own business than they are about the U.S. economy. Inflation, availability of qualified labor and tariff costs top the list of concerns for local businesses.

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