WASHINGTON (Reuters) -U.S. corporate profits fell sharply in the first quarter and could continue to be squeezed this year by higher costs from tariffs that are threatening to undercut the economic expansion.
Profits from current production with inventory valuation and capital consumption adjustments dropped $118.1 billion last quarter, the Commerce Department’s Bureau of Economic Analysis (BEA) said on Thursday. Profits surged $204.7 billion in the October-December quarter.
President Donald Trump’s sweeping import duties have cast a shadow over the economy, knocking business and consumer sentiment as well as unleashing unprecedented volatility on financial markets.
A U.S. trade court on Wednesday blocked most of Trump’s tariffs from going into effect in a sweeping ruling that the president overstepped his authority. Economists said the ruling, while it offered some relief, had added another layer of uncertainty over the economy.
The increasingly uncertain environment was echoed in minutes of the Federal Reserve’s May 6-7 meeting published on Wednesday, which noted “participants judged that downside risks to employment and economic activity and upside risks to inflation had risen, primarily reflecting the potential effects of tariff increases.”
Companies ranging from airlines, retailers to motor vehicle manufacturers have either withdrawn or refrained from giving financial guidance for 2025, citing the uncertainty caused by the on-again and off-again nature of some duties.
Businesses front-loaded imports and households engaged in pre-emptive buying of goods last quarter to avoid higher costs, making it difficult to get a clear picture of the economy.
The deluge of imports sent gross domestic product declining at an upwardly revised 0.2% annualized rate in the January-March quarter, the BEA said in its second estimate of GDP.
The economy was initially estimated to have contracted at a 0.3% pace. It grew at a 2.4% rate in the fourth quarter. When measured from the income side, the economy also contracted at a 0.2% rate in the first quarter. Gross domestic income (GDI) expanded at a 5.2% pace in the October-December quarter.
The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, declined at a 0.2% rate. Gross domestic output grew at a 3.8% pace in the fourth quarter.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
