US economy shrank by 1.5% in first quarter of 2022
The US economy shrank by 1.5% in the first quarter of 2022 compared to the first three months of last year, according to revised data released on Thursday by the Bureau of Economic Analysis.
The latest downward revision for gross domestic product, which is the broadest measure of goods and services produced across the economy, came just weeks after the Commerce Department predicted a 1.4% contraction.
It was the first time since the second quarter of 2020 – the early stages of the coronavirus pandemic – that GDP fell.
The 1.5% contraction came in sharp contrast to the 6.9% growth in GDP that was reported in the final quarter of 2021.
Analysts said the result was due to robust US consumer spending on imports, which exceeded spending on exports.
Absent the trade imbalance, the GDP would have been 3.2% higher.
The contraction was also attributed to a slower restocking of goods in stores and warehouses, which reduced 1.1% off the GDP.
The economy continues to be burdened by soaring levels of inflation, which has prompted analysts to raise their risks of recession.
The consumer price index rose 8.3% in April.
Earlier this month, the Fed enacted a larger-than-normal half-point interest rate hike – effectively making it more expensive to borrow money with a goal of cooling spending.
Fed Chair Jerome Powell has signaled similar hikes to come in June and July.
Despite the disappointing first quarter results, better economic news could be on the horizon.
Wall Street continued its recovery from a seven-week losing streak on Thursday as investors seized on apparent signs that the worst of sky-high inflation may be over.
The Dow Jones Industrial Average rose 565 points, or 1.6%, to 32,647 and the Nasdaq rose 2.8% as of 1:30 p.m. Eastern local time.
The S&P 500, which is coming off seven straight weekly losses, its longest such stretch since 2001, was up 2.1%.
The market was galvanized by a strong set of quarterly results from Macy’s and other retailers.
On Wednesday, the nonpartisan Congressional Budget Office released a report indicating that it expects the gross domestic product to grow 3.1% in 2022.
The CBO report also predicted that soaring levels of inflation will cool each month to around 2% by some point in 2024.
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% annual pace from April through June and 2.5% for all of 2022.
“Our tried-and-true recession indicators continue to signal that, while recession risks are indeed uncomfortably high, a recession is still not the most likely scenario for the US economy,” said Scott Hoyt of Moody’s Analytics.
With Wire