Accessibility links

Breaking News

U.S. Economy Contracted in 2022 First Quarter

FILE: A money exchange vendor counts U.S. dollar banknotes , May 24, 2022

The U.S. government reported Thursday that the nation's economy shrank in the first three months of the year even though consumers and businesses kept spending at a solid pace. But analysts say the economy has likely resumed growing in the current April-June quarter.

The Commerce Department estimated that the U.S. 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.

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.

Also contributing to the weakness was 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.

The report says the United States 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.

The Federal Reserve has begun aggressively raising interest rates to fight the fastest inflation the United States has suffered since the early 1980s.
The Fed is banking on its ability to engineer a so-called soft landing: Raising borrowing rates enough to slow growth and cool inflation without causing a recession. Many economists, though, are skeptical.

In a survey released this month, 34 economists told the Federal Reserve Bank of Philadelphia that they expect GDP to grow at a 2.3% annual pace from April through June and 2.5% for all of 2022. Still, their forecast marked a sharp drop from the 4.2% growth estimate for the current quarter in the Philadelphia Fed's previous survey in February.