US growth suffered an unexpected halt in the first quarter, with GDP even contracting by 1.4%, but the economy “remains resilient”, said Joe Biden, citing “technical factors” to explain this drop of diet.
The GDP of the world’s largest economy fell at an annualized rate, ie projected at this rate over the year. Compared to just last quarter, the decline is 0.4%, according to Commerce Department data. Analysts were predicting growth of 1.1%.
“The United States faces challenges from COVID-19 around the world, to Putin’s unwarranted invasion of Ukraine [le président russe] and global inflation,” the US president said in a statement. Then, during a press conference, he assured that he was “not worried” about a risk of recession, highlighting consumer spending by households and businesses and an unemployment rate at one historic low.
The first quarter nevertheless marks a clear reversal of the trend compared to the annualized growth rate of 6.9% recorded in the fourth quarter of 2021. This poor performance will seriously complicate the task of the American Central Bank (Fed), which intended to raise vigorously the rates to curb inflation.
This quarter is the weakest since the spring of 2020, when the pandemic plunged the US economy into a deep recession.
Between January and March, the world’s largest economy was affected by a wave of infections with the Omicron variant and the persistence of problems in supply chains. A few economists have recently flagged the possibility of a near-term recession, pointing to a combination of factors affecting the economy, starting with inflation at a pace not seen since the early 1980s.
In the first quarter, consumer prices rose 6.3% year on year, according to the PCE inflation index – the one favored by the Fed – published with GDP on Thursday. In addition to inflation, businesses are grappling with a labor shortage caused by massive retirements and resignations by the millions of workers each month seeking better paying jobs.
“Robust so far”
At the same time, the Commerce Department notes a decrease in government aid, exports (-5.9%) and federal government spending (-5.9%), while imports increased by 17.7% . The Russian-Ukrainian war that began on February 24 further accentuated the problems of global supply chains and inflationary pressures.
However, the majority of economists believe that the US economy remains solid, as consumption, the historical engine of growth in the United States, has held up. In the first quarter, these expenses increased by 2.7%, after 2.5% in the last quarter of 2021.
“Weak on the surface, but tough on the inside,” wrote Gregory Daco, chief economist at EY Parthenon, on Twitter, while taking care to add in parentheses “for now.”
“The first contraction in GDP since the end of the recession is sure to stoke fears of a slowing economy, but when you look closer, the report isn’t as worrisome as it sounds. seems,” said Lydia Boussour, economist at Oxford Economics.
Still, the outlook is highly uncertain as the war in Ukraine slows growth for a majority of countries globally and China’s zero-tolerance policy on COVID continues to fuel supply issues.
Eyes are now on the Central Bank, which meets on Tuesday and Wednesday. Its chairman, Jerome Powell, said last week that the Fed was planning to raise key rates faster than expected. For Rubeela Farooqi, economist at High Frequency Economics, “the positive trend in consumer spending and business investment” should encourage the Fed to stay the course.
Joe Biden once again urged Congress to call a vote on his investment plans.