The United States economy shrank in the first three months of the year even though consumers and businesses kept spending at a solid pace, the government reported on Thursday, in a slight downgrade of its previous estimate for the January-March quarter.
Last quarter’s drop in the US gross domestic product — the broadest gauge of economic output — does not likely signal the start of a recession. The contraction was caused, in part, by a wider trade gap: The nation spent more on imports than other countries did on US exports. The trade gap slashed first-quarter GDP by 3.2 percentage points.
And a slower restocking of goods in stores and warehouses, which had built up their inventories in the previous quarter for the 2021 holiday shopping season, knocked nearly 1.1 percentage points off the January-March GDP.
Analysts have said the economy has likely resumed growing in the current April-June quarter.
The Department of Commerce estimated that the economy contracted at a 1.5 percent annual pace from January through March, a slight downward revision from its first estimate of 1.4 percent, which it issued last month. It was the first drop in GDP since the second quarter of 2020 — in the depths of the COVID-19 recession — and followed a robust 6.9 percent expansion in the final three months of 2021.
The nation has remained stuck in the painful grip of high inflation, which has caused particularly severe hardships for lower-income households, many of them people of colour. Though many US workers have been receiving sizable pay raises, their wages in most cases have not kept pace with inflation. In April, consumer prices jumped 8.3 percent from a year earlier, just below the fastest such rise in four decades, set one month earlier.
High inflation has also posed a political threat to President Joe Biden and Democrats in Congress as midterm elections draw near. A poll this month by The Associated Press-NORC Center for Public Research found that Biden’s approval rating has reached the lowest point of his presidency — just 39 percent of adults approve of his performance — with inflation a frequently cited contributing factor.
Still, by most measures, the economy as a whole remains healthy, though likely weakening. Consumer spending — the heart of the economy — is still solid: It grew at a 3.1 percent annual pace from January through March. Business investment in equipment, software and other items that are intended to improve productivity rose at a healthy 6.8 percent annual rate last quarter.
And a strong job market has given people the money and confidence to spend. Employers have added more than 400,000 jobs for 12 straight months, and the unemployment rate is near a half-century low. Businesses have advertised so many jobs that there are now roughly two openings, on average, for every unemployed American.
The economy was widely believed to have resumed its growth in the current quarter: In a survey released this month, 34 economists told the Federal Reserve Bank of Philadelphia that they expect GDP to grow at a 2.3 percent annual pace from April through June and 2.5 percent for all of 2022. Still, their forecast marked a sharp drop from the 4.2 percent growth estimate for the current quarter in the Philadelphia Fed’s previous survey in February, Al Jazeera reports.
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