GDP

The U.S. economy contracted at a 0.5% annual rate in Q1 2025 in newly revised data, slightly worse than the previous estimates of a 0.2% decline. It remained the first decrease in activity since Q1 2022, with a  sharp pullback from 2.4% growth in Q4 2024. That said, the data are volatile, distorted by consumers and businesses front-loading purchases ahead of anticipated tariff increases. Imports surged at a 37.9% annual rate, contributing to a record trade deficit and subtracting 4.61 percentage points from GDP. Much of that was stockpiled, with inventories adding 2.59 percentage points to growth.

Consumer spending—a key driver of restaurant sales—slowed sharply in the first quarter. Personal consumption expenditures rose just 0.5%, the weakest pace since the pandemic and a key contributor to the downward revision in the latest GDP report. This was well below the earlier estimate of 1.2% and a steep drop from 4.0% growth in Q4.

Durable goods spending fell 3.7%, led by declines in motor vehicles and parts, which alone subtracted 0.30 percentage points from GDP. Service-sector spending also decelerated notably, slowing from 3.0% growth in Q4 to just 0.6% in Q1. Foodservices and accommodations spending pulled back, subtracting 0.09 percentage points from growth—reflecting more cautious dining behavior early in 2025.

For restaurant and foodservice operators, this means, that while consumers will continue to prioritize spending on food away from home, the amount and frequency may continue to moderate. This is already playing out in mixed same-store sales and overall traffic data.

Government spending was another drag. Federal outlays fell 4.6% at an annual rate, cutting 0.31 points from GDP. State and local spending rose 2.0%—its slowest pace since Q2 2022—adding 0.21 points to top-line GDP growth.

Looking ahead, uncertainty looms—particularly on the policy front—prompting caution among both consumers and businesses and dampening discretionary spending, including dining. While Q1 was skewed by tariff-driven stockpiling, Q2 may show the reverse: reduced imports and inventory drawdowns. Some early purchases may also have pulled demand forward, setting the stage for additional softness.

Current forecasts call for annualized GDP growth of 1.5% in 2025, though downside risks keep the outlook clouded. Greater policy clarity could help unlock stronger economic performance, but for now, anxiety continues to weigh on momentum. Even so, the U.S. economy has shown surprising resilience, and with fewer obstacles, consumer and business spending could help stave off a more pronounced slowdown.