This week, much of the mainstream media ran with the headline that the economy contracted in the first quarter of this year. Predictably, they promptly blamed President Donald Trump.
But a quick glance under the hood shows the data points to a much stronger economy than the headlines suggest.
On Wednesday, the Bureau of Economic Analysis released its estimate of economic growth measured by gross domestic product (GDP) for January through March. The topline figure pointed to a contraction of 0.3 percent – a number that certainly doesn’t seem positive.
If we learned anything from economic data under former President Joe Biden, though, it’s that headlines are often deceptive. For example, Biden’s blowout government spending increased GDP figures but added nothing to the productive private sector. In other words, the numbers looked good, but Americans were growing poorer.
Fast forward to Trump’s first quarter back in office. With the help of Elon Musk and the DOGE crew, he’s managed not only to slow government purchases but to decrease them for the first time in three years. That accomplishment showed up as a 0.25 percentage point subtraction from GDP – essentially accounting for the entire quarterly decline.
Reducing government is a great sign that Trump is “reprivatizing the economy” (as Treasury Secretary Scott Bessent has put it), but this positive move shows up statistically as a decrease in GDP.
The even larger subtraction to GDP came from imports, which exploded 41.3 percent as folks raced to bring products into the country before import taxes could take effect. That pushed GDP down by 5.04 percentage points.
Thus, the decline in government spending and the one-off spike in imports account for the entire quarterly decline in GDP, and then some. In other words, the terrible news really isn’t all that terrible. In the case of lower government spending, it’s actually great news!
Another positive development – which the talking heads somehow managed to miss, was that interest on the federal debt declined for Q1 2025.
When Trump left office, interest on the debt cost about $600 billion a year. Biden managed to nearly double that, with interest payments exceeding an annualized $1.1 trillion by the end of his term – exceeding all defense spending combined.
Both Trump and Secretary Bessent deserve tremendous credit for arresting the exploding cost of servicing the nation’s debt. But the best part of the GDP report was this showstopper: investment (the impetus of long-run real economic growth) is skyrocketing, up 21.9 percent at a seasonally adjusted annualized rate.
Under Biden, investment lagged badly below its pre-pandemic trend, even turning negative by the end of his term.
Trump has managed to reverse that in short order, partly by promising the world that he will transform America into the most business-friendly country on the planet via tax and regulatory cuts and boosts in energy production. Those promises incentivize reshoring of manufacturing and the industrial base.
This makes it imperative that Congress get its act together and get a tax cut across the finish line for American people and businesses, both of whom desperately need relief from the Biden era of big government.
If Congress and the president can both reduce marginal tax rates and peel back burdensome overregulation, the economy will be off to the races. Permitting reform and an energy boom would be the icing on the cake, providing the winning formula to get growth up and inflation down.
Reducing government spending has already noticeably impacted inflation. These latest data show that while inflation had been reaccelerating, spiking in January (just as Trump took office), price increases ground to a halt by March.
The plan to shrink government and grow the private sector is already working well. Now, it’s time to capitalize on that momentum and start bringing prices down by implementing more of Trump’s pro-growth agenda.
As bilateral trade agreements bring resolution to the tariff war, we should expect the import surge to evaporate and exports to climb. That in turn will show up as a surge in GDP (just as the rise in imports dragged down GDP).
Indeed, the Federal Reserve Banks of both Atlanta and New York are now forecasting that economic growth in the second quarter will exceed an annualized 2.0 percent.
When it came to economic data under Biden, the devil was always in the details. But, under Trump, the angels are in the details, with this GDP report’s relatively strong internals giving cause for celebration. Now, it’s time for Congress and Trump to build on their momentum and deliver a win for the American people.
E.J. Antoni, Ph.D., is a public finance economist, the Richard F. Aster fellow at the Heritage Foundation, and a senior fellow at Unleash Prosperity.
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