U.S. economy shrinks faster than expected in first quarter: Bureau of Economic Analysis


The economy contracted more than expected in the first quarter. Here’s what the economists say. (iStock)

Real gross domestic product (GDP) contracted in the first quarter of 2022, faster than expected, according to the second estimate of the Bureau of Economic Analysis (BEA).

GDP shrank at an annual rate of 1.5% in the first quarter of this year, down from the 1.4% drop previously expected in the advanced estimate, according to the BEA. This decline was mainly driven by revisions to private inventory investment and residential investment, but was partially offset by an upward revision to consumer spending.

The BEA also said that the United States economy continues to feel the effects of the COVID-19 pandemic, although it is impossible to calculate how much of the economic slowdown is due to it, as GDP data does not cannot be separated.

“In the first quarter, an increase in COVID-19 cases linked to the Omicron variant resulted in continued restrictions and disruptions to facility operations in parts of the country,” the BEA said. “Government assistance payments in the form of repayable loans to businesses, grants to state and local governments, and social benefits to households have all declined as the provisions of several federal programs have expired or been reduced.”

Meanwhile, inflation continues to rise, price changes are increasing, and the gross domestic purchases price index jumped 8% in the first quarter, compared to a 7% increase in the fourth quarter, according to the report. The personal consumption expenditure price index – which is another measure of inflation – jumped 7%, compared to a 6.4% increase in the fourth quarter of 2021.

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Does the decline in GDP signal a recession?

Opinions of economists differ on the possibility of a recession in 2022. A recession occurs when the country’s economy experiences two consecutive quarters of contractions. Since the GDP growth rate was strong in the fourth quarter — to 6.9% — it would have to contract again in the second quarter to launch the economy into recession.

“It is perhaps unsurprising that the decline in economic growth at the start of the year fueled fears that the economy was slipping into a recession,” Wells Fargo said in its latest report. economic perspective. “However, as we noted at the time, the contraction is, in part, a reward for the robust growth rate of 6.9% recorded in the last quarter of 2021.”

Wells Fargo forecast GDP to rise 2.4% in 2022 and fall to 2% in 2023. Some economists, however, were more worried. Goldman Sachs economists noted that historical models would suggest the overheated labor market is raises fears of a recession. They predicted a 15% chance of a recession in the next 12 months and a 35% chance in the next 24 months.

Earlier this month, Bank of America economists said the the risks of a recession in the United States are increasinggiven the GDP reading which showed the economy contracted 1.4% in the first quarter.

“That said, slower-than-expected real GDP growth — not a recession — is our baseline operating scenario for the United States over the next 12 to 18 months,” Bank of America said in its outlook. .

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Fed remains on track for future rate hikes

Despite weaker-than-expected GDP and recession threats, the Federal Reserve continues to plan further interest rate hikes this year and through 2023. The latest Federal Reserve meeting minutes released Wednesday show that Fed officials said they are ready to go ahead with several 50 basis point interest rate hikes over the next few months.

“Most participants felt that increases of 50 basis points in the target range would likely be appropriate at the next two meetings,” the minutes read.

Members of the Federal Open Market Committee raised the federal funds rate by 50 basis points at its meeting in Maythe highest rate hike in two decades.

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