{"id":6499,"date":"2022-04-29T15:07:06","date_gmt":"2022-04-29T20:07:06","guid":{"rendered":"https:\/\/nwfl4sale.com\/u-s-economy-contracts-for-1st-time-since-2020\/"},"modified":"2022-04-29T15:07:06","modified_gmt":"2022-04-29T20:07:06","slug":"u-s-economy-contracts-for-1st-time-since-2020","status":"publish","type":"post","link":"https:\/\/nwfl4sale.com\/u-s-economy-contracts-for-1st-time-since-2020\/","title":{"rendered":"U.S. Economy Contracts for 1st Time Since 2020"},"content":{"rendered":"
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The nation\u2019s GPD shrank at a seasonally adjusted annual rate of 1.4% in 1Q 2022. But U.S. consumers and businesses \u2013 the economy\u2019s core \u2013 remain healthy.<\/span><\/span><\/span><\/p>\n<\/div>\n McLEAN, Va. \u2013 After a blockbuster 2021, the U.S. economy decidedly came back to earth early this year, contracting for the first time since the second quarter of 2020.<\/span><\/span><\/span><\/p>\n The trade deficit widened and companies pulled back stockpiling, more than offsetting solid consumer spending and business investment.<\/span><\/span><\/span><\/p>\n The nation\u2019s gross domestic product, the value of all goods and services produced in the\u00a0U.S., shrank at a seasonally adjusted annual rate of 1.4% in the January-March period, the\u00a0Commerce Department\u00a0said Thursday. Economists surveyed by Bloomberg had forecast a 1% rise in GDP.<\/span><\/span><\/span><\/p>\n It marks the economy\u2019s worst quarterly showing since the depths of the health crisis in spring 2020 and follows sizzling gains of 6.9% in the fourth quarter and 5.7% for all of last year. That was the strongest annual rise since 1984.<\/span><\/span><\/span><\/p>\n But it doesn\u2019t mean the economy is in a recession, though the odds of a slump already had risen to 20% to 30% over the next 12 months from 15% in 2021, top economists say.<\/span><\/span><\/span><\/p>\n A drop in quarterly output \u2013 or even two in a row \u2013 doesn\u2019t equate to a downturn. Rather, the\u00a0National Bureau of Economic Research\u00a0defines a recession based on a significant decline in economic activity, including employment, retail sales and industrial production.<\/span><\/span><\/span><\/p>\n U.S.\u00a0consumers and businesses \u2013 the core of the economy \u2013 remain healthy.<\/span><\/span><\/span><\/p>\n \u201cWhile the possibility of a 2023 recession can\u2019t be ruled out, current economic momentum in the economy remains too strong for things to suddenly sputter out,\u201d economist\u00a0Thomas Feltmate\u00a0of TD Economics wrote in a note to clients.<\/span><\/span><\/span><\/p>\n Growth should still be sturdy, if markedly slower, in 2022. But Thursday\u2019s report kicks off an uncertain year for the economy as inflation eases but remains elevated and the\u00a0Federal Reserve\u00a0wages an aggressive campaign to fight it with interest rate hikes that could risk a downturn.<\/span><\/span><\/span><\/p>\n In the first quarter, trade accounted for the dismal performance, subtracting more than 3 percentage points from growth.<\/span><\/span><\/span><\/p>\n Exports fell 5.9% as\u00a0U.S.\u00a0manufacturers continued to grapple with supply snarls, and foreign countries struggled with COVID-19 flare-ups.<\/span><\/span><\/span><\/p>\n Meanwhile, imports surged 17.7% as a result of American consumers who continued to snap up goods. The combination widened the trade gap.<\/span><\/span><\/span><\/p>\n Companies bulked up their inventories late last year after drawing them down earlier in response to late deliveries. But they replenished stockpiles so aggressively \u2013 adding more than 5 percentage points to GDP growth \u2013 that there was bound to be a pullback in the first quarter, says economist\u00a0Ian Shepherdson\u00a0of Pantheon Macroeconomics.<\/span><\/span><\/span><\/p>\n Consumer spending, which makes up 70% of economic activity, grew 2.7% following a 2.5% rise late last year. Those are decent numbers, but they pale next to the double-digit advances of early 2021 when the economy was re-opening and federal stimulus checks juiced purchases.<\/span><\/span><\/span><\/p>\n On the one hand, the nation continued to heal from COVID-19 in recent months as cases tumbled after January\u2019s omicron surge, leading many Americans to resume shopping, traveling and dining out. That has partly made up for a cutback in consumers\u2019 spending binges on sofas, TVs and other goods while they hunkered down during the pandemic.<\/span><\/span><\/span><\/p>\n Households also have been bolstered by robust job and wage growth as employers struggle to fill a near-record number of openings. Many people are still out of the labor force \u2013 meaning they\u2019re not working or looking for jobs \u2013 for COVID-19-related reasons.<\/span><\/span><\/span><\/p>\n But inflation hit a 40-year high of 8.6% in March and the spike in gasoline, food and rent costs has led many households to curtail their discretionary purchases, says Wells Fargo economist\u00a0Sam Bullard.<\/span><\/span><\/span><\/p>\n The supply chain bottlenecks that helped fuel the soaring prices are starting to ease and many economists believe inflation has peaked. But\u00a0Russia\u2019s\u00a0war in\u00a0Ukraine\u00a0and COVID-19-related lockdowns in\u00a0China\u00a0pose new threats to the shipment of goods across the globe.<\/span><\/span><\/span><\/p>\n Bullard expects the economy to grow 2.8% this year, a healthy showing in relation to the pre-pandemic era, but a big downshift from last year\u2019s leap in output.<\/span><\/span><\/span><\/p>\n And the Fed has vowed to bring down inflation with sharp interest rate hikes, raising concerns about whether the central bank can slow the price increases without triggering a recession. Pearce predicted the first-quarter drop in GDP would not keep the Fed from hiking rates by half a percentage point at a meeting next week.<\/span><\/span><\/span><\/p>\n How other parts of the economy performed:<\/span><\/span><\/span><\/p>\n Business capital spending grew a healthy 9.2% after a 2.9% gain in the fourth quarter.<\/span><\/span><\/span><\/p>\n Outlays for computers, delivery trucks, factory machines and other equipment jumped 15.3%. Supply chain snags are easing, spurring businesses to order more vehicles and other equipment that had been in short supply. And persistent w shortages are leading companies to buy more labor-saving technology, says economist\u00a0Michael Pearce\u00a0of Capital Economics.<\/span><\/span><\/span><\/p>\n But spending on buildings, oil rigs and other structures edged down 0.9% after an 8.3% decline late last year. Intellectual property spending rose 8.1%, notching strong results for the seventh straight quarter.<\/span><\/span><\/span><\/p>\n Housing construction and renovation rose a modest 2.1% following a 2.2% gain the previous quarter.<\/span><\/span><\/span><\/p>\nInflation eases but remains high<\/span><\/span><\/span><\/h3>\n
Firms added to inventories more slowly<\/span><\/span><\/span><\/h3>\n
Supply chain untangles, but\u00a0Ukraine,\u00a0China\u00a0pose challenges<\/span><\/span><\/span><\/h3>\n
Business investment rebounds<\/span><\/span><\/span><\/h3>\n
Residential investment rises<\/span><\/span><\/span><\/h3>\n