The U.S. economy shrank at a 0.5% annual pace from January through March as President Donald Trump’s trade wars disrupted business, the Commerce Department reported Thursday in an unexpected deterioration of earlier estimates.

First-quarter growth was weighed down by a surge of imports as U.S. companies, and households, rushed to buy foreign goods before Trump could impose tariffs on them. The Commerce Department previously estimated that the economy fell 0.2% in the first quarter. Economists had forecast no change in the department’s third and final estimate.

The January-March drop in gross domestic product — the nation’s output of goods and services — reversed a 2.4% increase in the last three months of 2024 and marked the first time in three years that the economy contracted. Imports expanded 37.9%, fastest since 2020, and pushed GDP down by nearly 4.7 percentage points.

Consumer spending also slowed sharply, expanding just 0.5%, down from a robust 4% in the fourth-quarter of last year. It is a significant downgrade from the Commerce Department’s previous estimate.

Consumers have turned jittery since Trump started plastering big taxes on imports, anticipating that the tariffs will impact their finances directly.

And the Conference Board reported this week that Americans’ view of the U.S. economy worsened in June, resuming a downward slide that had dragged consumer confidence in April to its lowest level since the COVID-19 pandemic five years ago.

The Conference Board said Tuesday that its consumer confidence index slid to 93 in June, down 5.4 points from 98.4 last month. A measure of Americans’ short-term expectations for their income, business conditions and the job market fell 4.6 points to 69. That’s well below 80, the marker that can signal a recession ahead.

A category within the GDP data that measures the economy’s underlying strength rose at a 1.9% annual rate from January through March. It’s a decent number, but down from 2.9% in the fourth quarter of 2024 and from the Commerce Department’s previous estimate of 2.5% January-March growth.

This category includes consumer spending and private investment but excludes volatile items like exports, inventories and government spending. Ryan Sweet of Oxford Economics called the downgrade in that figure “troubling,″ though he doesn’t expect to make a significant change to his near-term economic forecast.

And federal government spending fell at a 4.6% annual pace, the biggest drop since 2022.

Trade deficits reduce GDP. But that’s just a matter of mathematics. GDP is supposed to count only what’s produced domestically, not stuff that comes in from abroad. So imports — which show up in the GDP report as consumer spending or business investment — have to be subtracted out to keep them from artificially inflating domestic production.

The first-quarter import influx likely won’t be repeated in the April-June quarter and therefore shouldn’t weigh on GDP. In fact, economists expect second-quarter growth to bounce back to 3% in the second quarter, according to a survey of forecasters by the data firm FactSet. The first look at April-June GDP growth is due July 30.

AP

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The U.S. economy grew at a healthy 2.8% annual rate from July through September, with consumers helping drive growth despite the weight of still-high interest rates.

Wednesday’s report from the Commerce Department said the gross domestic product — the economy’s total output of goods and services — did slow slightly from its 3% growth rate in the April-June quarter. But the latest figures still reflect surprising durability just as Americans assess the state of the economy in the final stretch of the presidential race.

Consumer spending, which accounts for about 70% of U.S. economic activity, accelerated to a 3.7% annual pace last quarter, up from 2.8% in the April-June period. Exports also contributed to the third quarter’s growth, increasing at an 8.9% rate.

On the other hand, growth in business investment slowed sharply on a drop in investment in housing and in nonresidential buildings such as offices and warehouses. But spending on equipment surged.

Wednesday’s report also contained some encouraging news on inflation. The Federal Reserve’s favored inflation gauge — called the personal consumption expenditures index, or PCE — rose at just a 1.5% annual pace last quarter, down from 2.5% in the second quarter and the lowest figure in more than four years. Excluding volatile food and energy prices, so-called core PCE inflation was 2.2%, down from 2.8% in the April-June quarter.

The report is the first of three estimates the government will make of GDP growth for the third quarter of the year. The U.S. economy has continued to expand in the face of the much higher borrowing rates the Fed imposed in 2022 and 2023 in its drive to curb the inflation that surged as the United States bounced back with unexpected strength from the brief but devastating COVID-19 recession of 2020.

Despite widespread predictions that the economy would succumb to a recession, it has kept growing, with employers still hiring and consumers still spending. And with inflation steadily cooling, the Fed has begun to cut interest rates.

The report “sends a clear message that the economy is doing well, and inflation is moderating — good news for the Federal Reserve,’’ said Ryan Sweet, chief U.S. economist at Oxford Economics.

Within the GDP data, a category that measures the economy’s underlying strength rose at a solid 3.2% annual rate from July through September, up from 2.7% in the April-June quarter. This category includes consumer spending and private investment but excludes volatile items like exports, inventories and government spending.

“Today’s GDP report shows how far we’ve come since I took office—from the worst economic crisis since the Great Depression to the strongest economy in the world,’’ President Joe Biden said.

Other recent economic reports have also pointed to a still-healthy economy. In a sign that the nation’s households, whose purchases drive most of the economy, will continue spending, the Conference Board said Tuesday that its consumer confidence index posted its biggest monthly gain since March 2021. The proportion of consumers who expect a recession in the next 12 months dropped to its lowest point since the board first posed that question in July 2022.

At the same time, the nation’s once-sizzling job market has lost some momentum. On Tuesday, the government reported that the number of job openings in the United States fell in September to its lowest level since January 2021. And employers have added an average of 200,000 jobs a month so far this year — a healthy number but down from a record 604,000 in 2021 as the economy rebounded from the pandemic recession, 377,000 in 2022 and 251,000 in 2023.

On Friday, the Labor Department is expected to report that the economy added 120,000 jobs in October. That gain, though, will probably have been significantly held down by the effects of Hurricanes Helene and Milton and by a strike at Boeing, the aviation giant, all of which temporarily knocked thousands of people off payrolls.

Despite the continued progress on inflation, average prices still far exceed their pre-pandemic levels, which has exasperated many Americans and posed a challenge to Vice President Kamala Harris’ prospects in her race against former President Donald Trump. Most mainstream economists have suggested, though, that Trump’s policy proposals, unlike Harris’, would worsen inflation.

At its most recent meeting last month, the Fed was satisfied enough with its progress against inflation — and concerned enough by the slowing job market — to slash its benchmark rate by a hefty half percentage point, its first and largest rate cut in more than four years. When it meets next week, the Fed is expected to announce another rate cut, this one by a more typical quarter-point.

The central bank’s policymakers have also signaled that they expect to cut their key rate again at their final two meetings this year, in November and December. And they envision four more rate cuts in 2025 and two in 2026. The cumulative result of the Fed’s rate cuts, over time, will likely be lower borrowing rates for consumers and businesses.

AP

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The massive port workers’ strike that has crippled all the major dockyards on the Eastern seaboard of the U.S. is highlighting a fear held by many workers: Eventually, we will all be replaced by machines.

The International Longshoremen’s Association, which represents the approximately 45,000 dock workers who walked off the job Tuesday, is testing whether it’s possible to fight back.

The union is demanding, along with hefty pay raises, a total ban on the automation of grates, cranes and container-moving trucks in its ports. But it’s unclear whether they’ll be able to stave off a trend that has seeped into virtually every workspace.

The growth of automation and technological advances have created tension between workers and management since the Industrial Revolution, when machines first began to manufacture goods that had previously been made by hand. And with the growing use of artificial intelligence, the group of jobs workers perceive as threatened with disruption is ever-widening.

“You cannot bet against the march of technology,” said Yossi Sheffi, director of the MIT Center for Transportation & Logistics. “You cannot ban automation, because it will creep up in other places.”

It’s not the first time that port workers have resisted automation. In 1960, as ports on the West Coast introduced machinery to move cargo once moved by hand, the union representing longshoremen negotiated protections for workers, including assurances that the current workforce would not be laid off, according to the International Longshore & Warehouse Union.

Harry Bridges, who led the union at the time, negotiated pay increases and job security arrangements for some of the workers, said Adam Seth Litwin, associate professor of industrial and labor relations at Cornell University.

“He saw that this was going to become potentially a real problem if he didn’t try to get ahead of it,” Litwin said. “Essentially what he was saying was, ‘I recognize the reality of what’s happening here, and the way to best represent my members is to make sure that they are protected.’”

The downside was that as port machinery became more common, the size of the union eroded precipitously over the years.

The coal industry went through a similar reckoning as conveyor belts and other machines displaced laborers. Union leader John Lewis negotiated for job security and pay increases for existing workers, but the encroachment of machines led to fewer hires, and over time the workforce and union ranks shrunk.

“Amongst coal miners today, he isn’t necessarily a big hero, but he knew what he was doing. And I think he also recognized that fighting automation rarely makes a whole lot of economic sense, particularly if you’re talking about a market that’s at all competitive,” Litwin said.

Some dockyards outside the U.S are far more automated and efficient, especially ports in Dubai, Singapore and Rotterdam, Sheffi said.

There are ways unions and employers can protect workers. Some unions have negotiated that employees must receive guaranteed employment protection if companies bring in technologies that could make their jobs obsolete. Others have bargained for employers to provide tuition reimbursement or retraining programs so workers can shift into other roles when machines come in.

“The trick is to make it over time, not to do it haphazardly,” Sheffi said.

When health care giant Kaiser Permanente switched from paper to digital medical records a decade ago, dozens of unions bargained together to ensure workers wouldn’t lose jobs or face wage reductions as a result of the technology deployment. Drivers who moved boxes of medical records to warehouses and librarians who retrieved paper files who were trained and reassigned to roles such as medical librarians or coders, Litwin said.

“They ultimately all got pay increases because they ended up being in jobs that ended up being more highly skilled,” Litwin said.

Workers such as cashiers or file clerks who perform routine tasks and have lower levels of education face the greatest risks of their jobs being automated, according to Dawn Locke, a director at the U.S. Government Accountability Office. But the growth of artificial intelligence is increasingly threatening cognitive jobs.

In the months after the launch of ChatGPT, a generative AI tool that can compose essays, write computer code and engage in conversations, job postings for writers, coders and artists plummeted.

“Now we see law firms putting AI to use and cutting the number of junior associates,” Sheffi said. “But it’s a problem. How do you become a senior associate arguing before the Supreme Court if you don’t start as a junior associate?”

When companies embrace artificial intelligence, it doesn’t always result in workers losing jobs. In some cases the productivity gains enabled by automation or AI make workplaces more profitable, enabling them to hire even more workers.

But unions aren’t taking any chances. In September, video game performers reached an agreement after striking with 80 games that provided protections around exploitative uses of artificial intelligence.

Last year, Hollywood screenwriters concerned that scripts would soon be written by artificial intelligence won protections against the use of AI after a five-month strike.

“More and more people who thought they were immune from automation are probably looking to groups like the longshoremen and thinking, ‘Wait a second, actually, I may not be that far removed from this,’” Litwin said.

AP

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