America’s gross domestic product (GDP) decreased by an annualized rate of 0.3% during the first quarter of 2025, according to the Bureau of Economic Analysis’s (BEA) advance estimate published Wednesday, down from an annualized 2.4% growth rate in the fourth quarter of 2024. The dip raises fears of a looming recession, but intervening factors could provide an alternative explanation.

The BEA noted a 5.1% decrease in federal government spending (an 8.0% decrease in defense spending, and a 1.0% decrease in non-defense spending). According to BEA data, this decrease in federal government spending reduces the GDP by 0.33% — the entire amount by which it declined.

This finding reduces the urgency of recession fears. It is, admittedly, far from ideal that the U.S. economy essentially didn’t grow during the first three months of this year. Yet the decline in GDP can be attributed solely to the federal government not spending money it doesn’t have. Federal government spending restraint is a good thing that will improve America’s economic health. And a GDP dip based on such a salutary development seems more like a fluke of the formula than a serious problem.

The most important story in the first quarter numbers is that American companies appeared to be stocking up on imported products in anticipation of Trump’s tariffs, which were announced on April 2. The BEA recorded sharp increases in domestic private investment (21.9%) and in imported goods (50.9%). Yet these large percentages had little impact on the final result. Since imports is a negative category for calculating GDP (it calculates exports minus imports), these two categories roughly cancel each other out.

The increased investment was largely due to inventory investment, particularly in the category “drugs and sundries.” The highest categories of imported goods were “medicinal, dental, and pharmaceutical preparations, including vitamins” and “computers, peripherals, and parts.” Effectively, this shows that domestic businesses were stocking up heavily on pharmaceutical drugs, as well as computer parts, most likely semiconductors.

If an instrument you’re playing makes a horrid sound, there are two possible explanations. It could be that you played the instrument poorly. Or, it could be that the instrument is out of tune — perhaps due to environmental factors.

Under normal circumstances, quarterly GDP estimates provide a reliable instrument to measure the health and prosperity of the economy. But 2025 has not provided normal circumstances. Cuts to federal government spending and the anticipated effects of tariffs are two environmental factors, if you will, which are effectively throwing off the instrument’s calibration — throwing it out of tune.

Quarterly GDP estimates will eventually resume their normal programming, but only once the economic volatility in response to major economic policy changes has subsided. The first quarter GDP numbers do not even measure the effects of Trump’s Liberation Day tariffs, which were only announced on April 2. They only measured the anticipation of tariffs. The second quarter report will measure the response to the Liberation Day tariffs, their speedy suspension, and the looming results of whatever trade deals the Trump administration negotiates.

In other words, more disruption is coming before the economy (and the role of GDP as an effective measuring instrument) returns to its normal programming.

Nevertheless, it is noteworthy that, aside from federal government spending, the U.S. economy was essentially flat over the first quarter. This is likely due to the uncertainty businesses felt about the looming tariff announcements. It is difficult to plan future business ventures without knowing what future tax rates (and therefore future prices and profit margins) will be. So, businesses might be holding off on making investments until they know the business conditions in which they will have to operate. The lack of economic growth may be simply a matter of timing.

However, the Bureau of Labor Statistics (BLS) also reported on April 10 that the Consumer Price Index (the standard measure of inflation) decreased by 0.1% in March, after increasing 0.2% in February and 0.5% in January. Core inflation increased 0.1% in March. These figures suggest that all the remaining Bidenflation has been sucked out of the economy in just a couple months. Yet rapidly falling inflation — perhaps ticking over into deflation — could also indicate another recession just around the corner.

The U.S. economy is crouched and waiting. Will it spring into action once again? Or will a tariff 2’x4’ knock it on the head and send it sprawling?