US economy shrank by 1.5% in Q1
Consumer spending continues to be strong
WASHINGTON – The U.S. economy shrank in the first three months of the year even though consumers and businesses kept spending at a solid pace, the government reported Thursday in a slight downgrade of its previous estimate for the January-March quarter.
Last quarter's drop in the U.S. 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 U.S. exports. The trade gap slashed firstquarter 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 say the economy has likely resumed growing in the current AprilJune quarter.
The Commerce Department estimated that the economy contracted at a 1.5% annual pace from January through March, a slight downward revision from its first estimate of 1.4%, 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% expansion in the final three months of 2021.
The nation remains stuck in the painful grip of high inflation, which has caused particularly severe hardships for lower-income households, many of them people of color. Though many U.S. workers have been receiving sizable pay raises, their wages in most cases haven't kept pace with inflation. In April, consumer prices jumped 8.3% from a year earlier, just below the fastest such rise in four decades, set one month earlier.
High inflation is also posing a political threat to President Joe Biden and Democrats in Congress as midterm elections draw near.
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% 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% annual rate last quarter.
And a strong job market is giving 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.
The economy is 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 they expect GDP to grow at a 2.3% annual pace from April through June and 2.5% for all of 2022.