US GDP falls 1.4% as the economy contracts for the first time since early in the pandemic

The US economy contracted in the first quarter as supply disruptions affected production and masked the underlying strength in consumer and business spending that indicates growth will resume soon.

The decline in the gross domestic product of the United States at an annual rate of 1.4% The Commerce Department said Thursday that this is a sharp reversal from the 6.9% annual growth rate in the fourth quarter. The first quarter was the weakest since the spring of 2020, when the Covid-19 pandemic and the related shutdown of the US economy pushed A deep – albeit short – stagnation.

The decline originated from widening trade deficit. Imports to the United States increased and exports decreased, the dynamics reflecting the supply chain constraints associated with the pandemic. The slower pace of inventory investment by companies in the first quarter – compared to the rapid build-up of inventories at the end of last year – also dampened growth. In addition, the waning of government stimulus spending related to the pandemic has affected GDP.

Consumer spending, the main driver of the economy, rose at an annualized rate of 2.7% in the first quarter, a slight acceleration from the end of last year. Companies also poured more money into equipment and research and development, which led to a 9.2% increase in business spending.

“The local economy remains remarkably resilient,” said Diane Sonk, chief economist at Grant Thornton. But, she added, “This is not a fantasy economy.”

The GDP report is unlikely to change the Fed’s plans to raise interest rates quickly this year, including by half a percentage point at a two-day meeting next week. One reason: The report is likely to add to concerns that the economy is growing too fast. Private demand in the first quarter grew at an annualized rate of 3.7%, well above the 1.8% growth rate the Fed is forecasting for long-term macroeconomics.

US stocks rose sharply on Thursday, with tech stocks ahead, then

ID pads

It posted solid profits despite rising inflation in the US.

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Two years after the outbreak of the epidemic, the US economy is facing challenges, including supply disruptions related to the epidemic and Ukraine warA shortage of employment and high rates of inflation. Central bank officials raised the benchmark interest rate in March by a quarter of a percentage point from nearly zero to tame inflation, and they She indicated more increases are likely to follow.

Many economists believe the economy can withstand higher interest rates and return to modest growth in the second quarter and beyond, in part because consumers and businesses continue to spend.

Americans are spending more on services amid a decline in total Covid-19 cases and the lifting of remaining restrictions on the pandemic. Travel is a prime example: Hotel occupancy in the United States was 65.8% for the week ending April 23, up from 49.6% at the end of January, according to STR, a global hospitality data and analytics company.

More people are also boarding planes after air travel slowed amid the omicron wave. About 2.1 million people passed through airport checkpoints in late April, up from 1.4 million three months earlier, according to the Transportation Security Administration.

George Lewis, co-owner of the Brass Lantern Inn in Stowe, Virginia, is in high demand. His visits to the Maple Street bed and breakfast were strong, with rooms selling out on some weekends this spring, a sharp turnaround from earlier in the pandemic when the inn relied on small business aid to survive.

People called: ‘Is it really sold out? ‘ said Mr. Lewis. “I’m like, ‘Yeah, yeah, we’re really sold out. “”

Mr. Lewis remains more concerned about business in the year ahead. For example, it is not clear where the inflation will be, he said. Prices have risen really fast for heating the oil to warm rooms, as well as for the cheddar cheese that Mr. Louis uses to layer eggs, a breakfast dish he serves on Saturdays.

He added that consumer spending is another essential card.

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“We don’t know what people’s pockets can hold after this year,” he said. “Some people are spending…no matter the cost.”

GDP growth, percentage point contributions from selected categories

spending

on services

It was great

contributor.

spend merchandise

(Percentage. Points.)

Accumulation

the exams

led GDP

late higher

last year…

…but so far

this year

slowing down

weighing

on growth.

Trading

was the disability

also clouds

on growth.

spending

on services

It was great

contributor.

spend merchandise

(Percentage. Points.)

Accumulation

the exams

led GDP

late higher

last year…

…but so far

this year

slowing down

weighing

on growth.

Trading

was the disability

also clouds

on growth.

spending

on services

It was great

contributor.

spend merchandise

(Percentage. Points.)

Accumulation

the exams

led GDP

late higher

last year…

…but so far

this year

slowing down

weighing

on growth.

Trading

was the disability

also clouds

on growth.

goods

spending

(Percentage. Points.)

Accumulation

the exams

led GDP

late higher

last year…

…but so far

this year

slowing down

weighing

on growth.

Trading

inability

was too

Dragon

growth.

goods

spending

(Percentage. Points.)

Looking ahead, economists polled by the Wall Street Journal estimate that gross domestic product rose 2.6% in the fourth quarter of 2022 compared to the previous year, consistent with annual growth for 2019, but recorded much lower growth than 5.5% overall the past.

Labor market It is a major source of economic power at the present time. Jobless claims – an agent of layoffs – were close to historical lows Last week it fell to 180,000 With employers clinging to workers amid a shortage of available labor. Companies hire and raise wages, supporting consumer spending.

Percentage contribution to GDP change for selected groups, first quarter of 2022

Residential investment 0.1

Special Stocks -0.84

Housing and utilities 0.33

Other non-durable goods 0.11

Food and Beverage – 0.07

Consumption expenditure -0.09

Residential investment 0.1

Special Stocks -0.84

Housing and utilities 0.33

Other non-durable goods 0.11

Food and Beverage – 0.07

Consumption expenditure -0.09

Residential investment 0.1

Special Stocks -0.84

Housing and utilities 0.33

Other non-durable goods 0.11

Food and Beverage – 0.07

Consumption expenditure -0.09

Residential investment 0.1

Special Stocks -0.84

Housing and utilities 0.33

Other non-durable goods 0.11

Food and Beverage – 0.07

Consumption expenditure -0.09

However, high inflation reduces the purchasing power of households. Consumer prices rose 8.5% in March from a year earlier, the highest level in four decades. Rising inflation has wiped out wage gains for many workers: Average hourly wages have risen 5.6% over the same period.

Also, prices are rising quickly and is a challenge for many companies.

Share your thoughts

What are your expectations for the US economy in 2022? Join the conversation below.

Cratex Manufacturing Co. Ltd., a 100-person manufacturing company, manufactures and sells industrial abrasives to other manufacturers for use in the production of steel mills, jet engine blades and metal castings. Riker McCasland, president of Cratex, said the San Diego-based company has seen the prices of the materials it buys — such as resin and rubber — rise between 5% and 30% since last fall.

At the same time, Cratex had to raise wages to retain workers.

“It’s a race to stay ahead of all those increased costs,” said Mr. McCasland. He added that the price increases for raw materials outpaced Cratex’s ability to offset them through its price increases.

Airlines, gas stations, and retailers use complex algorithms to adjust their prices in response to cost, demand, and competition. Charity Scott of WSJ explains what dynamic pricing is and why companies use it so often. Illustration: Adele Morgan

write to Sarah Chaney Cambone at [email protected]

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