GDP fell at an annual rate of 1.4% in the first three months of the year
Contributors to GDP change in the first quarter of 2022 The companies sold surplus stock by the end of 2021 Personal consumption pushed GDP by 1.8 percentage points Imports increased, reducing GDP Contributors to GDP change in the first quarter of 2022 The companies sold surplus stock by the end of 2021 Personal consumption increased, pushing GDP by far 1.8 ppt Imports increased, reducing GDP Quarterly GDP contributions change in the first quarter of 2022 The companies sold the surplus stock purchased at the end of 2021. Personal consumption increased in the first quarter of 2022, pushing GDP up 1.8 p.m. Imports increased, reducing GDP Quarterly GDP contributions change in the first quarter of 2022 The companies sold the surplus stock purchased at the end of 2021. Personal consumption increased in the first quarter of 2022, pushing GDP up 1.8 p.m. Imports increased, reducing GDP -1.4% in total change in GDP The US economy shrank at an annual rate of 1.4 percent in the first three months of the year, the first such decline dates back to the closing of the 2020 pandemic. The sharp reversal, after more than a year of rapid growth, has policy makers, economists , businesses and families trying to understand how the economy is doing and what the latest GDP report tells us about where we are going from here. Five graphs that explain why inflation is at a high of 40 years Here are some ways to think of the economic growth data, in the context of high inflation, the narrow labor market and the uncertainty of a possible recession that could occur in the future.
What is hidden behind the percentage of 1.4%? To summarize, the US economy shrank sharply at the beginning of the pandemic and then boomeranged in 2021. Last year, the economy grew by 5.7%, the fastest clip for the whole year since 1984. Economists did not expect the economy to maintain the same momentum this year as federal stimulus programs were exhausted and the Federal Reserve moved to raise interest rates to slow growth and handle rising prices. However, the negative data on gross domestic product remained a surprise and masked some signs of strength, such as consumer spending. The contraction sparked fears that a recession – defined as two consecutive quarters of negative growth – could be on the horizon as the Fed cut interest rates by up to seven this year. But economists do not draw a straight line between this report on GDP and the increased risk of recession. If the economy shrinks later this year, it could be for a variety of reasons, such as the Fed raising interest rates too sharply or people pulling back on spending, economists say. The White House is trying to adapt to the changing economy “My big question in the future is: ‘When will they start to slow down their pocketbook?’ But it’s not because of this report, “said Beth Ann Bovino, chief US economist for S&P Global Ratings. “In the future, will there be a point where people either run out of buffer, or start to feel overwhelmed with their savings or are tired of paying higher prices?
Rejection in stock markets One of the main reasons for the downturn in the first quarter was the so-called stock markets of retailers, which are the goods that companies tend to buy before they need them. Retailers often shop much earlier to prepare for things like the festive shopping season. And in some cases, companies will supply materials if they are worried about supply chain delays or other issues such as rising prices. This happened at the end of 2021. Remember all these snafus in the supply chain? Retailers brought a lot of goods early to make sure there were no shortages during the holidays. “Everything has stopped”: Shanghai shutdowns exacerbate shortages In early 2022, many of these same companies realized that they had too many sweaters, toys or gadgets left and no longer needed stock. Stock markets alone are responsible for much of the fall in GDP – up to 0.84 percentage points.
More imports burden GDP The United States did not export as many goods in the first three months of the year. In addition, the country imported many more things, in part because of all the different supply chain problems that plagued companies last year, even in the face of high consumer demand. This move widened the trade deficit. And widening trade deficits play a big role in how GDP is calculated. The GDP report removes virtually all products purchased from other countries, which appears to be a significant burden on GDP. In fact, the decrease in exports and the increase in imports, in total, are responsible for 3.2 percentage points of the fall. “Demand for goods is so strong that Americans are turning to the international economy to meet demand,” said Joe Brusuelas, chief economist at RSM. “There has been an increase in demand for goods and that is, in short, the problem.” International trade figures also tend to receive serious revisions following initial GDP estimates. More specific details will be announced next week. For now, however, “the domestic side of the equation has been strong,” Bovino said.
The other great forces of the economy The GDP report comes as policymakers and economists tackle two key issues in the economy: skyrocketing inflation and a narrow labor market. Inflation has risen to its highest level in 40 years, with prices up 8.5% in March from a year earlier. The Fed is struggling to gain control of rising prices before integrating further into the economy. Republicans are pounding the Fed because it is too slow to respond and blaming much of the Democrats’ extensive efforts to stimulate democracy since last year. Meanwhile, the labor market has shown tremendous strength since 20 million jobs went out of business two years ago. The unemployment rate remains extremely low – 3.6 percent – and the job market was a huge point of contention for the Biden government. But economists and policymakers are also concerned that the labor market is unsustainable. There are far more jobs than job seekers, and the mismatch makes the Fed try to reduce demand for workers without making people lose their jobs.
