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.
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.
