Dismal US Q1 GDP Shrank 1.4% vs +1.1% expected

The US economy had the first contraction since early in the pandemic shrining 1.4% in the first quarter after it was expected to grow 1.1%. The decline in U.S. gross domestic product was a sharp reversal from the 6.9% annual growth rate in the fourth quarter, the Commerce Department said Thursday. The drop in GDP was fueled by a widening trade deficit. Fading government stimulus spending related to the pandemic weighed on GDP.

US Factory Worker

USA Advance Q1 2022 GDP highlights

The Q1 GDP shows economy fell back in robust action, the question remains is it powerful enough to recover and keep the economy on a form footing, ovecome debt buildups and rapid inflation.

  • US Q1 advance GDP -1.4% vs +1.1% expected
  • Q4 final was 6.9% annualized
  • Consumer spending +2.7% vs +2.5% prior
  • Consumer spending on durables -4.1% vs +2.5% in Q4
  • GDP deflator +8.0% vs +7.3% expected
  • Core PCE +5.2% vs +5.4% expected
  • GDP final sales -0.6% vs +1.5% in Q4
  • Nominal GDP vs up 14.3% annualized in Q4
  • Business investment +9.2% vs +2.9% in Q4
  • Home investment +2.1% vs +2.2% in Q4
  • GDP ex motor vehicles -1.3%
United States GDP Growth Rate

High inflation is cutting into households’ purchasing power. Consumer prices rose 8.5% in March from a year earlier, a four-decade high. Elevated inflation is wiping away pay gains for many workers: average hourly earnings were up 5.6% over the same period.

  • Inventories cut 0.84 pp from growth
  • Net trade cut 3.2 pp from growth
  • Home investment cut 0.03 pp from GDP
  • Personal consumption added 1.83 pp GDP
  • Gross private domestic investment added 0.43 pp to GDP
  • Government spending cut 0.48 pp from GDP

The labor market is a key source of economic strength right now. Jobless claims are hovering near historically low levels amid a shortage of available workers. Businesses are hiring and ramping up wages, supporting consumer spending, the economy’s main driver.

Prior to the release economists surveyed by The Wall Street Journal estimate GDP rising 2.6% in the fourth quarter of 2022 from a year earlier, matching 2019 annual growth, but logging in well below 5.5% growth recorded last year.

Source:Bureau of Economic Analysis

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