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

US GDP shrinking at an annual rate of 1.4% In the first quarter as supply disruptions weighed on the economy, although consumer spending and robust business indicate a resumption of growth.

The Commerce Department reported Thursday that the decline in US gross domestic product 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 deficitThe United States imports far more than it exports. 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 most important aspects of the domestic economy have held up better than they did at the end of 2021, when growth was high,” Diane Sonk, chief economist at Grant Thornton, said in a note.

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.

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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 one prime example: hotel occupancy rates are up from January, and more people are also getting on planes.

George Lewis, co-owner of the Brass Lantern Inn in Stowe, Virginia, is in high demand. His Maple Street bed and breakfast visits have been 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 the 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.

“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

It was a 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

It was a 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.

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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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