The outlook for the U.S. economy has shifted, with data suggesting a potential contraction in economic activity as the country begins 2025. The Atlanta Federal Reserve, known for its GDPNow model, revised its forecasts, now projecting a -1.5% annualized contraction in real Gross Domestic Product (GDP) for the first quarter, down from an earlier projection of 2.3% made on February 19.

Key indicators such as consumer spending, consumer confidence, inflation expectations, and trade deficit figures are contributing to this grim assessment.

The Atlanta Fed noted a significant drop in the projected contribution of net exports to GDP growth for the first quarter, sliding from -0.41 percentage points to -3.70 percentage points.

Additionally, the prediction for real personal consumption expenditures also decreased, from 2.3% to 1.3%.

On the same day, the U.S. Census Bureau released trade data indicating a historic high trade deficit for January, which reached $153.263 billion.

This represents a 25.6% increase compared to December and a staggering 70% rise from the $90.282 billion deficit recorded in January of the previous year.

Uncertainties surrounding tariffs announced by President Donald Trump have reportedly influenced U.S. import levels.

Trump had initially indicated intentions to impose tariffs on Mexico, Canada, and China on his first day in office, but has since walked back on several tariff commitments.

Meanwhile, increased imports have been observed.

Concurrent data from the Bureau of Economic Analysis, part of the Department of Commerce, indicates a 0.2% reduction in consumer spending for January compared to December, with a real drop of 0.5%.

This decline has raised concerns about consumer behavior amid prevailing economic uncertainties.

Expectations of inflation have surged due to potential tariffs, contributing to a decline in consumer confidence.

Major corporations have cited risks to earnings and profitability stemming from tariffs, alongside the broader impact of protectionist measures on U.S. and global economic growth.

Some firms express apprehension regarding potential disruptions in their supply chains.

Despite these emerging challenges, the U.S. economy exhibited a growth rate of 0.6% quarter-on-quarter (annualized 2.3%) in the last quarter of the previous year, according to the latest official estimates, and the economy expanded 2.8% on a real basis for the full year of 2024.

However, signals indicating a possible recession are surfacing, highlighted by the inversion of the yield curve, where shorter-term interest rates exceed those of longer-term bonds.

Treasury yields for the 10-year note reached their lowest levels of the year this week, prompting corrections in bond and equity prices.