November 28, 2022

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The US economy shrank 1.6% in the first quarter, adding to recession fears

The US economy shrank 1.6% in the first quarter, adding to recession fears

With a quarter of negative economic growth on record, the data adds to fears that a recession may be looming.

Real GDP declined at an annual rate of 1.6% from January to March, according to the BEA’s third and final reviews for the quarter.

Previously, an advance estimate released in April showed a contraction of 1.4%. Last month, that was revised down to 1.5%.

The first-quarter GDP performance, which the FBI indicated included some unquantified impacts from the pandemic and the variable rise in Omicron, in contrast to the fourth quarter of 2021, when the economy grew 6.9% from the previous quarter.

However, the first quarter of 2022 marked the beginning of the Russian invasion of Ukraine, which sent economic waves throughout the global supply chain, as well as the food, finance and energy markets.

Domestically, US inflation has risen to levels not seen in decades amid ongoing supply chain challenges, rising costs of goods and labor and higher oil prices.

The Bureau of Trade and Industry attributed the recent 0.1 percentage point decline to slower-than-expected growth in consumer spending, although that was partially offset by gains in private inventory investment.

Shannon Serry, an economist at Wells Fargo, said the shift in consumer spending estimates puts additional emphasis on the latest data on the PCE price index, one of the Fed’s preferred inflation metrics. The latest report is due on Thursday.

Siri said Wells Fargo expects a mild recession in the second quarter of 2023, although strong household finances and strong consumer and business balance sheets should sustain such a downturn that, if it occurs, will be tamed somewhat.

Whereas a recession is generally defined as a decline of two consecutive quarters of GDP, This is not a strict rule, especially for people who make the official decision. The National Bureau of Economic Research, the arbiter of US recessions, studies a range of indicators in addition to GDP performance Define stagnation as “a marked decline in economic activity that spreads through the economy and lasts more than a few months”.

An advance estimate of GDP performance for the second quarter is due on July 28.

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