Sunday, August 7, 2022

US economy shrank more than expected in recent quarter

The US economy shrank at a 1.6% annual pace in the first three months of the year, the government reported on Wednesday, a slight decline from its previous estimate for the January-March quarter.

It was the first decline in GDP – the broadest measure of economic output – since the second quarter of 2020, in the depths of the COVID-19 slowdown, and after a strong 6.9% expansion in the last three months of 2021. Inflation is hitting 40-year highs, and consumer confidence is sinking.

Last month, the Commerce Department had forecast GDP growth at 1.5 per cent in the first quarter. But in its third and final estimate on Wednesday, the department said consumer spending – which accounts for about two-thirds of economic output – was significantly weaker than previously calculated, growing at a 1.8% annual pace instead of the 3.1% projected in May. Had been. ,

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This was partially offset by an amendment in the calculation of occupational inventory. Commerce said the company’s lack of shelves had shaved off less than 0.4 percentage points from first-quarter growth, down from the 1.1 percentage points projected in May.

In May, consumer prices rose 8.6% from a year earlier, the biggest year-on-year jump since 1981.
Associated Press

Still, negative GDP numbers probably don’t signal the start of a recession, and economists expect growth to resume later this year.

The decline in the first quarter doesn’t say much about the underlying health of the economy: A large trade deficit — reflecting Americans’ appetite for foreign goods and services — narrowed the January-March GDP change by 3.2 percentage points.

Business investment grew a healthy 5%.

Still, the US economy, which has enjoyed a sharp recovery from the short but devastating coronavirus recession of 2020, is under pressure as the Federal Reserve raises interest rates to rein in inflation that has hit a 40-year high .

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The rebound took businesses by surprise, and an unexpected surge in customer orders overwhelmed factories, ports and freight transport, leading to shortages, delays and higher prices. In May, consumer prices rose 8.6% from a year earlier, the biggest year-on-year jump since 1981.

In response, the Fed accelerated its plan to raise interest rates, raising its benchmark short-term rate to three-quarters of a percent, the biggest increase since 1994. The Fed expects to achieve a so-called soft landing — slowing economic growth enough to spur inflation, its 2% target without a recession.

High borrowing costs are already affecting the housing market.

For the full year, the economy is still expected to have a respectable growth: 2.5%, according to the World Bank.

Nation World News Desk
Nation World News Desk
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