What GDP Means for Your Money

First-quarter gross domestic product (GDP) growth for the US reflected an influx of imports as businesses attempted to front-load or buy large quantities of their inventories ahead of tariffs. This contributed negatively to first quarter GDP growth, which came in at -0.2% annualized for its second reading, revised upwards from -0.3% in the advance reading.

In theory, the net effect of front-loading on GDP should be zero because the drag on GDP from higher imports should be offset by an equal boost to GDP from higher consumer spending, business fixed investment, or inventory investment by an equal amount. However, higher imports were not fully offset by higher inventories and consumption in the first quarter, and Goldman Sachs Research continues to see first-quarter GDP growth as a distorted measure of economic growth.

To understand this, let’s review the basics on what goes into GDP and how it could potentially be distorted. Then finally, what does it all mean for your money?

What happened to the GDP in Q1 2025?

GDP is a fundamental economic indicator that measures the total value of all goods and services produced within a country's borders over a specific period, usually a year or a quarter. Essentially, it’s used to understand a country’s economic health.

To capture US production, the Bureau of Economic Analysis (BEA) adjusts spending data by subtracting imports and adding exports, as imports represent spending that does not contribute to domestic production:

GDP = Consumption + Investment + Government + (Exports - Imports)

During the recent quarter, producers, wholesalers, or retailers may have front-loaded import orders that they would have otherwise placed later in the year in anticipation of higher tariffs. The net effect on GDP should’ve, in principle, been zero because the subtraction from higher imports should have been offset by an equal addition from higher inventories or consumption.

In the second release of Q1 GDP, growth was revised slightly upwards by 0.1 percentage point to -0.2%. However, other components were revised downward, including consumer spending, housing investment, and structures investment. These downward revisions were partly offset by upward adjustments to equipment investment, intellectual property product investment, and government spending.

Goldman Sachs Research believes the relatively softer inventory and consumption growth could be due to challenges in measurement. In practice, import levels are often better measured than inventories due to taxation (imports are taxed, but inventories aren’t), so there may have been a distortion in the collection of data.

Goldman Sachs Research expects second quarter GDP growth to be distorted by the reversal of these effects as imports decline sharply after the end of front-loading and measured inventory investment stays solid. The Q1 GDP has been revised upwards to -0.2% (from -0.3%) in its second reading, with the potential for another revision in its third and final estimate as new data becomes available.

However, the precise timing of declining imports and normalizing inventories is uncertain, and further swings in those components are likely to contribute to heightened volatility and larger-than-usual revisions to GDP this year.

How does GDP impact you and your money?

When economists and policymakers talk about GDP, it may seem like an abstract number rather than something that can directly impact you – but it does.

At its core, GDP, GDP per capita, and GDP growth are key indicators used to gauge a country's standard of living. Steady GDP growth generally suggests that wages are increasing, more job opportunities are emerging, and the economy is expanding.

But GDP is not a perfect measure of living standards or overall economic health. An increase doesn't necessarily indicate that everyone's financial situation is getting better. However, it remains the most useful metric for assessing the economy's growth.

US economic outlook this year

Once GDP distortions pass in the first half of this year, Goldman Sachs Research expects soft GDP and domestic final sales growth in the second half of the year. Higher tariffs will likely continue to impose a drag on growth, reflecting the tax-like effect of higher prices, tighter financial conditions, and higher policy uncertainty.

Our economists expect GDP growth of 1.0% in 2025 on a Q4/Q4 basis, and their 12-month recession odds stand at 35%.