BEA reports sharpest corporate profit drop since 2020

Data released by the U.S. Bureau of Economic Analysis (BEA) revealed that corporations suffered the largest drop in quarterly profits since Q4 of 2020. The firm noted that corporate profits plummeted by $118 billion in Q1 2025.

The U.S. economy contracted in Q1 on an import surge following the start of President Donald Trump’s second term in office as he initiated a trade war with countries globally. Wall Street economists also changed their outlook to negative growth, largely because of an unexpected rise in imports as corporate institutions and consumers sought to counter the Trump levies imposed in early April.

Trump’s policy uncertainty weighs on corporate profits

🇺🇸💸 Trump's trade war has cost companies more than $34 billion in lost sales and higher costs, according to analysis of corporate disclosures, a toll that is expected to rise as ongoing uncertainty over tariffs paralyzes decision making at some of the world's largest companies. pic.twitter.com/CDoN5ASgih

— Flying Dutch Fella 🇺🇦🇳🇱🇪🇺 🇬🇪🇨🇦🇬🇱 (@FlyingDutchPall) May 29, 2025

Imports inched up 41.3% for the quarter, driven by a 50.9% increase in goods, reflecting the biggest growth outside the Covid pandemic since 1974. A sharp decline in federal expenditure also contributed to the weak GDP number amid Elon Musk’s efforts at the Department of Government Efficiency (DOGE). Federal government outlays declined 5.1% for the quarter, shaving off about one-third of a percentage point off GDP.

“No surprise that GDP took a hit in the first quarter, mainly because the balance of trade blew up as companies imported goods like crazy to front-run tariffs. The more telling number for the future of the expansion was consumer spending, and it grew, but at a relatively weak pace.”

-Robert Frick, Corporate Economist at Navy Federal Credit Union.

Trump announced a 10% across-the-board tariffs on U.S. trade partners as well as a flurry of reciprocal tariffs against several nations. On April 9, the President suspended those duties for 90 days to allow for negotiations between its trade partners, with some deals still ongoing. 

Corporate Institutions ranging from airlines and retailers to motor vehicle manufacturers have also refrained from giving financial guidance for 2025, citing the uncertainty caused by the heightened nature of some levies. Ford suspended its annual guidance on May 5, arguing that tariffs would cost the company about $1.5 billion in adjusted earnings before interest and taxes.

General Motors cut its 2025 profit forecast on May 1, two days after pulling its annual guidance. The company also paused plans to buy back $2 billion of shares in the first half of the year, pending more clarity on the economic outlook. Mercedes pulled its earnings guidance for 2025 on April 30 as it posted lower first-quarter profits. 

A U.S. court on Wednesday halted most of Trump’s levies from going into effect, ruling that the President overstepped his authority. The uncertainty on corporations was echoed during the Federal Reserve’s 6-7 meeting published on Wednesday, noting that participants judged that the downside risk of employment and economic activity and upside risk of inflation had risen, reflecting the potential effects of tariff increases.

Increased imports cause a drop in real GDP

According to the second estimate, the real gross domestic product (GDP) decreased at an annual rate of 0.2% in the first quarter of 2025. The report also disclosed that real GDP in the fourth quarter of 2024 increased by 2.4%.

The BEA also reported that real gross domestic income (GDI) decreased by 0.2% in the first quarter, compared to an increase of 5.2% in the fourth quarter of 2024. Corporate profits also decreased by $118.1 billion in the first quarter, compared to an increase of $204.7 billion in the fourth quarter.

The BEA said the decrease in real GDP in Q1 primarily reflected an increase in imports, which are a subtraction in the calculation of GDP, and a decrease in government spending. The government entity believes the movements in growth were partly offset by increases in investment, consumer spending, and exports. 

Data also revealed that the real GDP was revised up 0.1 percentage point from the advance estimate, reflecting an upward revision to investment that was partly offset by a downward revision to consumer spending. The personal consumption expenditure (PCE) price index increased by 3.6%, the same as previously estimated. Excluding food and energy prices, the PCE price index increased by 3.4%, which was revised down by 0.1 percentage points from the previous estimate.

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