The surprising contraction of the US economy in the first quarter was written off by Wall Street as a misleading number, which in no way signals an impending recession. So how well did the economy perform?
Not bad, it seems. Maybe even pretty good, economists say.
“The first quarter wasn’t as bad as it seemed at first glance,” said Comerica Bank chief economist Bill Adams of Toledo, Ohio.
Let’s start with a 1.4% drop in gross domestic product, the headline that attracts all the attention. GDP is a kind of official system for assessing the economy.
Most of the decline was due to the record US trade deficit, shrinking inventories and reduced government spending. In addition, these often variable categories subtracted a whopping 4.5 percentage points of GDP.
However, the real strength of the economy lies in consumer spending and business investment. Both were quite healthy in the first quarter of the year.
Consumer spending rose at a healthy rate of 2.7% after inflation – the highest in three quarters – and business investment jumped 7.3%. This was the largest increase in a year.
“Although GDP fell in the first quarter, the US economy is not in recession,” said GN Focher, chief economist at PNC Financial Services. “Several temporary factors – trade, stocks and government – have shrunk the economy.
According to economists, a better way to assess the performance of the economy is to consider the final sales of customers in the United States. Simply put, this measure eliminates exports and stocks and focuses on how much Americans buy from American and foreign sellers.
These sales grew by a solid 2.6% annual growth, significantly higher than in the second half of 2021.
Eliminate reduced US government spending and final sales to private customers – ie households and businesses – rose 3.7%.
Viewed in this way, the US economy actually strengthened from January to March compared to the end of last year, when key GDP figures were much higher. GDP grew by 6.9% in the fourth quarter of 2021 and 2.3% in the third quarter.
Can good times continue?
Economists predict that GDP will accelerate to a decline of 2% in the second quarter, but, as always, the devil will be in the details. The United States may face more difficult times, with the Federal Reserve raising interest rates and more turbulence abroad.
Add Comment