Filed Under: Business

US economy shrinks for first time since early pandemic

By ,

The Commerce Department’s Bureau of Economic Analysis (BEA) reported the U.S. economy shrank for the first time since the early days of the COVID-19 pandemic in the first quarter of 2022. The economy had seen six straight quarters of growth after shrinking by nearly a third in the second quarter of 2020.

Real gross domestic product (GDP) decreased at an annual rate of 1.4 percent in the first quarter of 2022,” the BEA said in a news release Thursday. “The decrease in real GDP reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased.”

To some extent, the first quarter’s weak showing reflected a slowdown from last year’s robust rebound from the pandemic. The economy grew 5.7% in 2021, the highest calendar-year expansion since 1984.

“Government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased as provisions of several federal programs expired or tapered off” by the end of 2021, according to the BEA.

Thursday’s report of a shrinking U.S. economy may add to worries of a possible recession next year.

However, the BEA’s report also revealed consumer and business spending remained steady. Inflation is squeezing households as gas and food prices spike, borrowing costs mount and the global economy is rattled by Russia’s invasion of Ukraine and China’s COVID-19 lockdowns.

“Personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment increased,” the BEA said. “The increase in PCE reflected an increase in services (led by health care) that was partly offset by a decrease in goods.”

Most economists expect this, combined with sustained growth from solid hiring and wage gains, will fuel a rebound in the second quarter of 2022. The expectation comes despite Federal Reserve plans to raise rates to fight the inflation surge.

Simone Del Rosario: THE U-S ECONOMY SHRUNK FOR THE FIRST TIME SINCE THE ONSET OF THE PANDEMIC, A DISAPPOINTING AND SHOCKING START TO 2022 CONSIDERING LAST YEAR’S EXCEPTIONAL GROWTH NUMBERS.

IN THE FIRST THREE MONTHS OF THIS YEAR, THE ECONOMY CONTRACTED 1.4%, BRINGING MORE RUMBLINGS OF A RECESSION, WHICH IS WHEN THE ECONOMY SHRINKS TWO QUARTERS IN A ROW.

CREIGHTON UNIVERSITY ECONOMIST ERNIE GOSS TELLS US THE *RISK OF A RECESSION *IS GROWING.

Ernie Goss: “It’s growing each day. Now, we’re still the probabilities of a recession, in my judgment are below 50%.”

Simone Del Rosario: HERE ARE THREE REASONS ECONOMISTS SAY THIS QUARTER’S DISAPPOINTING GROWTH NUMBERS – ARE NOT AS BAD AS THEY SEEM.

-A MASSIVE TRADE DEFICIT WAS A MAJOR FACTOR IN DECLINING GDP – WITH THE U-S IMPORTING FAR MORE THAN EXPORTING. THAT MOSTLY MEANS OUR DOMESTIC DEMAND WAS STRONGER THAN OUR TRADING PARTNERS, LIKE CHINA.

-CONSUMER SPENDING, WHICH WEIGHS HEAVY IN THE GDP EQUATION – IS STILL STRONG, AT 2.7% GROWTH.

-AND BUSINESS INVESTMENT WAS UP 9.2%, MEANING CORPORATE AMERICA IS STILL EXPANDING.

WHILE A SHRINKING ECONOMY LOOKS BAD FOR PRESIDENT BIDEN AND THE DEMOCRATS, AN INTERESTING FACTOID IS PART OF THE DECLINE WAS FROM *LESS GOVERNMENT SPENDING.

CHECK OUT MY EXPLAINER ON HOW GDP IS CALCULATED BY SEARCHING GDP ON OUR WEBSITE, STRAIGHT ARROW NEWS DOT COM.

The Commerce Department’s Bureau of Economic Analysis (BEA) reported the U.S. economy shrank for the first time since the early days of the COVID-19 pandemic in the first quarter of 2022. The economy had seen six straight quarters of growth after shrinking by nearly a third in the second quarter of 2020.

Real gross domestic product (GDP) decreased at an annual rate of 1.4 percent in the first quarter of 2022,” the BEA said in a news release Thursday. “The decrease in real GDP reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased.”

To some extent, the first quarter’s weak showing reflected a slowdown from last year’s robust rebound from the pandemic. The economy grew 5.7% in 2021, the highest calendar-year expansion since 1984.

“Government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased as provisions of several federal programs expired or tapered off” by the end of 2021, according to the BEA.

Thursday’s report of a shrinking U.S. economy may add to worries of a possible recession next year.

However, the BEA’s report also revealed consumer and business spending remained steady. Inflation is squeezing households as gas and food prices spike, borrowing costs mount and the global economy is rattled by Russia’s invasion of Ukraine and China’s COVID-19 lockdowns.

“Personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment increased,” the BEA said. “The increase in PCE reflected an increase in services (led by health care) that was partly offset by a decrease in goods.”

Most economists expect this, combined with sustained growth from solid hiring and wage gains, will fuel a rebound in the second quarter of 2022. The expectation comes despite Federal Reserve plans to raise rates to fight the inflation surge.

Related Reports


Get unbiased straight facts, context, and perspective!