Business

US economy experiences weakest quarter since early days of pandemic

GDP declined 0.4% in the first quarter, or 1.4% on an annualized basis. AP Photo/Rogelio V. Solis


The U.S. economy contracted in the first three months of the year, but strong consumer spending and continued business investment suggested that the recovery remained resilient.

Gross domestic product, adjusted for inflation, declined 0.4% in the first quarter, or 1.4% on an annualized basis, the Commerce Department said Thursday. That was down sharply from the 1.7% growth (6.9% annualized) in the final three months of 2021, and was the weakest quarter since the early days of the pandemic.

The decline was mostly a result of the two most volatile components of the quarterly reports: inventories and international trade. Lower government spending was also a drag on growth. Measures of underlying demand showed solid growth.

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Most important, consumer spending, the engine of the U.S. economy, grew 0.7% in the first quarter despite the omicron wave of the coronavirus, which restrained spending on restaurants, travel and similar services in January.

“Consumer spending is the aircraft carrier in the middle of the ocean — it just keeps plowing ahead,” said Jay Bryson, chief economist for Wells Fargo.

In the first quarter, slower growth in inventories shaved close to a percentage point off GDP growth. Companies raced to build up inventories in late 2021 to make sure supply-chain disruptions did not leave them with bare shelves during the holiday season. That meant they did not have to do as much restocking as usual in the new year.

The ballooning trade deficit, meanwhile, took more than 3 percentage points away from GDP growth in the first quarter. Imports, which are subtracted from gross domestic product because they are produced abroad, have soared in recent months as U.S. consumers have kept spending. But exports, which add to GDP, have lagged in part because of weaker economic growth abroad.

A measure of underlying growth, which strips out the effects of inventories and trade, rose 0.6% in the first quarter, adjusted for inflation. That represented a modest acceleration from the end of last year.

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“The moral of the story is that the omicron wave, the war in Ukraine and new lockdowns in China were more costly for growth abroad than they were at home,” said Diane Swonk, chief economist for the accounting firm Grant Thornton. “Domestic spending was remarkably resilient. It actually accelerated.”

This article originally appeared in The New York Times.

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