BOSTON — The U.S. economy slightly contracted in the first quarter, confirming that both economic weakness and federal revenue uncertainties are ongoing concerns for state budget writers. The size of the contraction in the state economy might have been even larger, according to one local expert.
Real gross domestic product decreased at an annual rate of 0.3% in the first quarter of 2025, the U.S. Bureau of Economic Analysis concluded in newly released estimates. In the fourth quarter of 2024, real GDP had increased 2.4%.
“Compared to the fourth quarter, the downturn in real GDP in the first quarter reflected an upturn in imports, a deceleration in consumer spending, and a downturn in government spending that were partly offset by upturns in investment and exports,” the bureau, an agency of the U.S. Commerce Department, reported.
It was the first quarterly U.S. GDP decline since the beginning of 2022.
Locally, Northeastern University associate professor emeritus Alan Clayton-Matthews said gross state product in Massachusetts has trailed the U.S. growth rate in the last four quarters.
“It looks like we’ll be trailing the U.S. again,” Clayton-Matthews, senior contributing editor of the MassBenchmarks economic journal, told the News Service. “We follow the U.S. economy pretty closely.”
The proposed $61.5 billion House budget for fiscal 2026 relies on tax revenues growing by 2.2%, a growth rate that does not account for the projected collection of $2.4 billion in income surtax revenue that must be spent on education and transportation only. State tax collections have held strong in fiscal 2025, but it’s unclear how shifting economic and funding priorities under the Trump administration will affect the state’s tax base.
MassBenchmarks plans to release its latest index of local economic conditions and gross state product later this month, but Clayton-Matthews shared some initial observations and projections.
He roughly estimated that Massachusetts has been trailing the U.S. growth trends by between half a point and a full point, suggesting that the Massachusetts economy may have contracted by 0.8% to 1.3%.
The reason, he said, is essentially flat payroll employment for the last year, which he said is related to an older workforce.
“We just don’t have the labor supply that we once had,” Clayton-Matthews said.
Clayton-Matthews said the professional business services sector has lagged, compared to its usual strength, reflecting weaknesses in the technology sector. He also identified weaker consumer spending, changing immigration policies and a shifting federal approach to higher education and medical research as concerns. He said the nation’s economic fortunes are closely tied to President Donald Trump’s trade and tariff policies.
It’s “way too early to tell” if there will be two straight quarters of contraction, often used as a sign of a recession, he said.
MassBenchmarks previously reported that the state economy had already “shifted into a lower gear” late last year. Real gross state product increased at an annual rate of 1.1% in the fourth quarter, compared to 2.3% nationally, and real gross state product increased at an annual rate of 2.3% in the third quarter of 2024.
The White House tied most of the GDP decline to “an unprecedented surge in imports due to tariff frontrunning” and Clayton-Matthews, saying Trump’s tariff policies are pivotal, also noted the first quarter decline was tied to businesses snagging imports at pre-tariff prices to stock shelves.
Trump, whose tariff-fueled bid to overhaul global trade has riled financial markets and renewed inflation worries, distanced himself from some of the data and touted pledges of private investment in the U.S.
The White House called GDP “a backward-looking indicator,” shared data on economic indicators that trended upward, and said colder-than-usual first quarter weather and California wildfires also hampered growth.
The bureau also reported Wednesday that personal income and disposable personal income increased at 0.5% monthly rates, and personal consumption expenditures increased by 0.7%. The personal saving rate — personal savings as a percentage of disposable personal income — was 3.9%.
“It’s no surprise the leftovers of Biden’s economic disaster have been a drag on economic growth, but the underlying numbers tell the real story of the strong momentum President Trump is delivering,” White House Press Secretary Karoline Leavitt said. “Robust core GDP, the highest gross domestic investment in four years, job growth, and trillions of dollars in new investments secured by President Trump are fueling an economic boom and setting the stage for unprecedented growth as President Trump ushers in the new Golden Age.”
The Massachusetts unemployment rate was 4.4% in March, up 0.6 percentage points since March 2024 and 0.2 points above the U.S. rate of 4.2%. State budget officials have built mild tax revenue growth into their plans, but year-over-year tax revenues are up by $2.149 billion or 7.8% through the first nine month of fiscal 2025.
While Trump blamed Biden for the first quarter GDP number, Democrat U.S. Sen. Elizabeth Warren blamed Trump for declining economic conditions.
“Donald Trump’s red-light, green-light tariffs are shrinking our economy, with businesses stockpiling imports in anticipation of tariff doomsday,” Warren said. “Consumer confidence has consistently plummeted through Trump’s first 100 days, and dropped to its lowest point since May 2020 – as Americans are deeply pessimistic about surviving a cratering economy deliberately damaged by the President.”