S&P Global Ratings expects U.S. real GDP to contract 0.3% on an annualized basis in the first quarter of 2025, citing frontloaded imports ahead of new tariffs and policy uncertainty surrounding trade and immigration.

Domestic demand remains solid, with S&P projecting 2.2% growth for the quarter, driven by higher investment outlays. However, weaker weather-related retail sales and a post-election decline in nonprofit sector spending are likely to pull consumption growth down to 1.2%, from 4.0% in the fourth quarter of last year.

Despite the anticipated GDP dip, the labor market shows signs of resilience. S&P forecasts an increase of 135,000 nonfarm payroll jobs in April, down from 228,000 in March, with the unemployment rate holding steady at 4.2%. Wage growth is expected to rise 0.3% month-over-month in April, keeping year-over-year gains near 3.9%.

Core inflation, measured by the core PCE price index, is expected to moderate to 2.5% year-over-year in March, down from 2.8% in February, due in part to falling energy prices.

S&P said the Federal Reserve is likely to hold interest rates steady at its May 6-7 policy meeting, given the mixed signals in economic data and a still-strong labor market.

Meanwhile, Canadian economic prospects remain subdued. February GDP is expected to remain flat, following a 0.4% increase in January, with weak real estate and rental sectors offsetting gains elsewhere. Employment losses and declining consumer confidence are weighing on Canada’s outlook, prompting expectations for further rate cuts later this year.

S&P Global Ratings publishes a weekly economic preview tracking key data releases in the U.S. and Canada.