Import surge continued in March. Which drops GDP for Q1, and makes Q2 slowdown worse

Today we found out that March was yet another month with a massive amounts of imports to America, as businesses tried to beat the “Liberation Day” tariffs declared by Donald Trump on April 2.

The international trade deficit was $162.0 billion in March, up $14.1 billion from $147.8 billion in February. Exports of goods for March were $180.8 billion, $2.2 billion more than February exports. Imports of goods for March were $342.7 billion, $16.3 billion more than February imports.

That’s quite the Trump effect for the first 3 months of 2025, isn’t it?

That explosion in imports will show up in tomorrow’s first look at Q1 GDP, as imports subtract from total domestic product. Now to be fair, this decline gets recovered when a final product that results from those imports is made and/or sold in the US, plus whatever profit the businesses pull.

But for Q1, it’s likely to take away from the totals, and March’s continued surge of imports dropped more than 1% from the final projection of GDPNow from the Atlanta Fed, which came out this morning.

After this morning’s Advance Economic Indicators release from the US Census Bureau, the standard and alternative model nowcasts of the contribution of net exports to first-quarter real GDP growth declined from -4.90 percentage points and -2.85 percentage points, respectively, to -5.26 percentage points and -4.05 percentage points.

Woof. But on the flip side, take out that import surge as well as increases in government purchases and overall inventories (which add to GDP), and the underlying economy generally has held up in the first three months of the year. As UW-Madison professor Menzie Chinn notes in Econbrowser.

Lastly, I also wanted to mention this part of the Census Bureau’s release, which to me includes a warning about things going forward.

Wholesale inventories for March, adjusted for seasonal variations and trading day differences, but not for price changes, were estimated at an end-of-month level of $908.0 billion, up 0.5 percent (±0.2 percent) from February 2025, and were up 2.3 percent (±0.7 percent) from March 2024. The January 2025 to February 2025 percentage change was revised from the preliminary estimate of up 0.3 percent (±0.2 percent) to up 0.5 percent (±0.2 percent).

So that’s two straight months of 0.5% increases in the value of inventories for businesses. Combine this increase in inventory with the rush of imports, and I don’t see much of a need to have much more to order in the coming months, do you?

Which helps explain why we’ve been seeing reports like this in recent weeks.

What makes the drop in consumer confidence in 2025 so remarkable to me is that the really bad stuff of layoffs (from a lack of orders) and higher prices (from tariffs) has largely yet to happen. But Americans seem to recognize that it’s coming soon enough, and if consumers start to cut back on their spending because of those well-founded worries about the future of the economy, then the recessionary cycle that we are likely to enter in Q2 will continue and deepen over time.