The US economy contracted unexpectedly in the first quarter as strong consumer and business spending was offset by a ballooning trade deficit, slower inventory build and a fall in public expenditure.
Gross domestic product contracted 1.4% year on year in the three months to March 31, down markedly from the 6.9% increase posted in the final quarter of 2021, according to the Commerce Department.
It was the first weakening of the economy since mid-2020 at the height of the Covid-19 pandemic and lockdowns. The figure was hit by a growing trade deficit, which hit a record high in March as import volumes and prices spiralled.
US growth, like most major economies, is being hampered by the highest inflation rate in four decades as the Russian invasion of Ukraine has driven up commodity prices and widening Covid lockdowns in China spark fears of weaker demand from importers and more supply chain issues for its exporters.
The net export of goods and services fell by 3.2%. However, personal consumption grew 2.7% during the quarter, a sign of strong consumer demand, and up from 2.5% at the end of 2021 as services spending increased.
“The first GDP contraction since the recession ended is sure to ignite fears that the economy is stalling out but on closer inspection, the report isn’t as worrisome as it looks,” said Lydia Boussour, lead US economist at Oxford Economics.
“Beneath the weak headline print, the details of the report point to an economy with solid underlying strength and that demonstrated resilience in the face of Omicron, lingering supply constraints and high inflation.”
“Net trade represented a massive 3.2 percentage point drag on GDP growth amid a weakening global backdrop while inventories imposed a 0.8 percentage point drag…as supply chain challenges intensified.”