News

Economic Report: GDP may have shrunk in the first quarter, but not because U.S. economy was bad

0

The U.S. economy likely laid an egg in the first quarter, based on the official scorecard for growth known as gross domestic product. But look past the headline number, analysts say, and the economy appears to have been fairly strong.

Here’s what to watch in Thursday’s GDP report for the first three months of 2022.

The forecast

The U.S. economy slowed to an annual 1% rate of growth in the first quarter from a sizzling 6.9% at the end of 2021, analysts polled by The Wall Street Journal estimate.

Some noted forecasters such as IHS Markit even forecast an outright decline for the first time since the onset of the pandemic in the spring of 2020.

A bad sign? A whiff of a pending recession? Hardly, economists say.

“That doesn’t mean the economy was weak,” chief economist Scott Brown of Raymond James said. “Rather, GDP can be a really misleading figure sometimes.”

So why the big dropoff? A record U.S. international trade deficit, less government spending, and a decline in inventory levels.

Yet the twin pillars that hold up the economy — consumer spending and business investment — were probably pretty strong in the first quarter.

The headline number, said chief economist Richard Moody of Regions Financial, “will be less informative than the details beneath it.”

Consumer spending

The most import detail is consumer spending since it accounts for more than two-thirds of U.S. economic activity.

Inflation-adjusted spending likely rose almost 3% in the first quarter, well above the 2.3% average in the 10 years before the pandemic. Americans are still spending plenty of money to support the economy — and not just because of high inflation.

Business investment

Companies appear to have boosted spending on equipment early in the year while construction firms invested more in new housing, indicating the private sector has more than enough business to keep itself busy.

The one negative: Spending on structures such as office buildings likely fell for the fourth quarter in a row.

Record trade deficit

Soaring imports have pushed the U.S. trade deficit to an all-time high. IHS estimates the record trade gap will subtract a whopping 3.5 points from GDP in the first quarter, helping to turn it negative.

Unsold goods

The 6.9% surge in fourth-quarter GDP was inflated by one of the biggest inventory buildups in decades as businesses sought to restock barren warehouse shelves in the wake of the coronavirus pandemic. But in the first quarter reduced stockpiling is expected to subtract slightly from GDP.

The end of massive federal stimulus spending put in place during the pandemic is likely to depress GDP for the third time in the past four quarters also.

Study: Marijuana Legalization Laws Not Associated with Lax Attitudes Toward Drugged Driving

Previous article

Significant risks of state-sponsored cyberattacks contribute towards industry growth: $198 billion by 2025, says GlobalData

Next article

You may also like

Comments

Leave a reply

Your email address will not be published.

More in News