US economy sees surprise contraction despite solid spending

President Joe Biden says 'not concerned' about possible recession

Workers at Target stores and distribution centres in places such as New York, where competition for finding and hiring staff is the fiercest, could receive starting wages as high as $24 an hour this year. AP

Walmart announced it will now train its drivers and supply the lorries for them. Getty Images / AFP

Most drivers must pay for their own vehicle, and its maintenance and insurance. Walmart said it will now pay for upkeep and overheads. AP

An average Apple retail sales associate is paid about $16.67 an hour in the US, 32 per cent above the national average but still not a sustainable wage amid inflation. Reuters

Employees at the Apple Store at the Grand Central Terminal in New York have begun the process of unionisation. Getty Images / AFP

Verizon has increased its minimum wage to $20 an hour for new and current employees. EPA

“These changes are the direct result of employee feedback and will help us remain an attractive employer in this competitive environment," said Krista Bourne, chief operating officer for Verizon Consumer Group. Reuters

In-person tutors can make anywhere from $45 to $100 an hour. Photo: Chatterbox

On average, pay for online tutoring starts at about $25 an hour. AP

Website testing can be very lucrative, with some workers reporting making more than $65,000 a year. Reuters

The US economy shrank in the first quarter of 2022 as the Omicron variant of the coronavirus hampered activity and companies bought more foreign products to rebuild depleted inventories, in the latest complication for a country already struggling with record inflation.

Analysts however played down the likelihood that a recession was coming, noting that the US Commerce Department data released on Thursday showed consumers and businesses stepping up spending in the first three months of the year — both indicators of economic health.

The 1.4 per cent decline in GDP was nonetheless unwelcome news for President Joe Biden, who has struggled to convince Americans that he can be trusted to preside over the world's largest economy.

Speaking to reporters at the White House, Mr Biden said he was “not concerned” about the possibility of a recession, pointing to the rise in spending as well as low unemployment as evidence of the economy's health.

“What you're seeing is enormous growth in the country that was affected by everything from Covid and the Covid blockages that occurred along the way,” he said.

After the economy expanded 6.9 per cent in the final quarter of 2021, forecasters were bracing for weak growth in the first three months of this year as the country dealt with a renewed wave of Covid-19 cases and government aid programmes lapsed.

The contraction was worse than expected and the first since the months of 2020 when the pandemic was at its worse, but Lydia Boussour of Oxford Economics said the data “isn't as worrisome as it looks".

“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,” she said in an analysis.

After mass layoffs and a record economic collapse after Covid-19 broke out in 2020, the US has recovered strongly, with the unemployment rate almost back to where it was before the pandemic and GDP expanding 5.7 per cent over the course of last year.

But it has been buffeted by external and internal shocks that have fuelled a wave of inflation not seen since the 1980s.

These include global supply chain snarls and shortages of components such as semiconductors, successive waves of Covid-19, Russia's invasion of Ukraine and its disruptions to prices for fuel and other commodities, and pandemic lockdowns in China that complicated trade.

Various grades of petrol, with prices above $7 per gallon, are displayed at a Chevron gas station in downtown Los Angeles, California. AP

Petrol prices are displayed at an Exxon gas station behind American flag in Edgewater, New Jersey. Reuters

Drivers in Hawthorne, California wait in line to pump fuel as the price of regular petrol reaches above $5.89 a gallon and premium fuel tips over $6 per gallon. AFP

'Any good news please' sign seen along with a price for a gallon of petrol at a service station in Denver, Colorado. AP

Two people wearing masks stand in front of a sign showing the price of petrol outside of a service station in Washington. AFP

A sign displays petrol prices as a vehicle departs a Shell station in Washington. AFP

A person takes photographs of petrol prices at a Shell station in Los Angeles, California. AFP

An attendant walks past a pump at a station selling petrol at almost $7 a gallon in Los Angeles, California. AP

A driver holds a fuel nozzle at a Shell station in San Francisco, California. Bloomberg

Two people wearing masks walk in front of a sign showing the price of petrol outside of a station as prices reach record highs in Washington. AFP

An electrical contractor repairs a sign with petrol prices in Los Angeles, California. AFP

Cars drive near a petrol station in Washington. AFP

Petrol prices are advertised at almost $7 a gallon in Los Angeles, California. AP

The Commerce Department said the decrease in GDP was the result of less private inventory investment and exports, as well as a jump in imports.

However, consumer spending picked up by 2.7 per cent while business spending rose 7.3 per cent, both increases from the prior quarter, data showed.

Ian Shepherdson of Pantheon Macroeconomics said last quarter's shortfall was partially a result of companies importing more to stock their shelves and keep factories running, and growth could rebound in the second quarter of 2022.

“The economy is not falling into recession. Net trade has been hammered by a surge in imports, especially of consumer goods, as wholesalers and retailers have sought to rebuild inventory,” he wrote in an analysis.

The economy is now bracing for the US Federal Reserve to make its next move to fight inflation next week, likely by increasing interest rates by a half-percentage point — twice as much as when it last month made its first increase since the pandemic began.