US STOCKS-Wall Street dips as economy contracts for first time since 2022

By Chuck Mikolajczak

NEW YORK, April 30 (Reuters) - U.S. stocks stumbled on Wednesday after data showed the economy contracted in the first quarter for the first time in three years, underscoring concerns about the impact of U.S. tariffs and the global trade war on worldwide growth.

In a session filled with economic data, the Commerce Department said its advance gross domestic product report showed a 0.3% contraction for the first quarter, falling short of expectations for 0.3% growth, according to economists polled by Reuters.

A separate report on monthly consumer spending, which accounts for more than two-thirds of economic activity, showed a jump of 0.7% in March, topping expectations for a 0.5% rise.

Both the GDP and consumer spending data appeared to be affected by the trade war, as businesses and consumers pulled forward spending to avoid tariffs.

Wednesday's reports join a series of data releases this month that have pointed to an increasingly uncertain outlook for the U.S. economy, as the fallout from the Trump administration's steep tariffs and unpredictable trade policy takes effect.

A gauge of the labor market indicated U.S. private payrolls growth slowed more than expected in April, as the ADP National Employment Report revealed an increase of only 62,000 jobs, well short of the 115,000 estimate, after a downwardly revised 147,000 gain in March.

On the plus side, a gauge of inflation showed price pressures cooled in March, stemming some fears for the potential of slow growth and high prices, also known as stagflation.

"It's important to realize that a large chunk of the fall in GDP is due to the sharp increase in imports, which takes away from GDP growth, and that's probably due to the expectation of tariffs," said Oliver Pursche, senior vice president and adviser at Wealthspire Advisors in Westport, Connecticut.

"If you were to normalize that, you end up with positive GDP growth for the quarter, but it certainly doesn't bode well for Q2, which is why the market is selling off."

The Dow Jones Industrial Average .DJI fell 10.87 points, or 0.03%, to 40,524.47, the S&P 500 .SPX lost 17.27 points, or 0.31%, to 5,543.56 and the Nasdaq Composite .IXIC lost 118.03 points, or 0.68%, to 17,343.24.

Traders are now pricing in a full percentage point interest rate cut from the Federal Reserve by the end of the year, although recent comments from Fed Chair Jerome Powell and other officials have indicated the central bank is likely to be cautious before adjusting policy.

The defensive consumer staples .SPLRCS led gains among the 11 major S&P sectors, buoyed in part by a jump of nearly 5% in chocolate and snack company Mondelez MDLZ.O after its quarterly results topped expectations.

After the closing bell, "Magnificent Seven" members Meta Platforms META.O and Microsoft MSFT.O were due to post their results that investors will eye for clarity on the outlook for AI-focused investments, which have helped fuel the stocks rally in recent years.

Meta shares were down nearly 3%, while Microsoft shed 1.1%.

Adding to concerns about a deceleration in AI investment, Super Micro Computer SMCI.O cut its third-quarter forecasts due to delays in customer spending, while Snapchat parent Snap SNAP.N said it would not provide a second-quarter financial forecast, the latest in a string of companies in various sectors that have withdrawn their outlooks.

Super Micro and Snap shares both fell more than 14%.

Caterpillar CAT.N fell 1.3% as one of the biggest drags on the Dow after its disappointing quarterly results.

After a sharp slump following the April 2 tariff announcements by U.S. President Donald Trump, stocks have rebounded, but the three major U.S. indexes are still poised for monthly declines.

The S&P 500 was on track to snap a six-session streak of gains, its longest since November.

Wednesday marks 100 days since Trump took office. Changes in trade policies and tariffs have heightened uncertainty and fueled volatility, negating initial enthusiasm after his November election over the possibility of business-friendly policies such as deregulation and tax cuts.

Declining issues outnumbered advancers by a 2.31-to-1 ratio on the NYSE and by a 1.79-to-1 ratio on the Nasdaq.

The S&P 500 posted eight new 52-week highs and three new lows while the Nasdaq Composite recorded 31 new highs and 79 new lows.