The U.S. economy flipped into reverse during the first three months of the year as the gross domestic product contracted at an annualized rate of 0.3%.
The culprit? Tariffs announced by President Donald Trump, whose timing led off a race to stock up among companies, which dragged down the GDP number.
But it’s not a sign of economic damage—yet. Rather, the negative number reveals a quirk in how gross domestic product, the sum total of all economic activity in the country, is calculated.
“We rarely advise clients to ignore economic reports outright, but the advance Q1 GDP report comes close to falling into that category,” Capital Economics wrote in a research briefing on Tuesday.
GDP is calculated by adding up business investment, government and consumer spending, and exports, and subtracting imports. Over the long run, subtracting imports doesn’t have an effect, Capital Economics explained. The negative imports show up as a positive number when a business puts the goods in its warehouse or a consumer buys it off the shelf.
But this is where timing matters. In the early days of Trump’s tariff announcements, companies rushed to get massive amounts of goods to the U.S., stockpiling items before consumers had the chance to buy them. That’s driven the GDP number into the negative.
“Consumer goods imports are running 55% higher than a year ago, whereas retail spending data show sales of those goods aren’t running anywhere close to that pace,” Capital Economics said.
The upshot is that, while the economic contraction from January to March looks dramatic, it doesn’t say much about what’s really going on.
Aside from trade, measures of consumer spending and business investment were fairly healthy, illustrating an economy slowing but not crashing. A 5% drop in federal spending, driven by the Department of Government Efficiency (DOGE), sent GDP lower than it would have been otherwise, but sales to domestic purchasers rose at a healthy 2.3% rate, while stronger-than-expected business investment further pushed up the figure.
“In two weeks time, arrivals will drop by 35%, as essentially all shipments out of China for major retailers and manufacturers has ceased, and cargo coming out of Southeast Asia locations is much softer than normal,” Gene Seroka, executive director of the Port of Los Angeles, said last week.
That means that, while this quarter’s economy looked much worse on paper than it was in reality, the opposite will likely be true in coming months.
“The U.S. economy was not close to recession in the first quarter,” PNC chief economist Gus Faucher said in an email to Fortune. “But consumer and business sentiment have fallen rapidly since President Trump’s announcement of big increases in tariffs, and inflation is set to pick up even further as tariff hikes work their way into prices.
“The higher the tariffs are, the longer they remain in place; and the greater the uncertainty surrounding them, the greater the probability of recession,” he said.
