US economy slumped 1.6% to start year; back to growth eyed

WASHINGTON (AP) — The U.S. economy shrank 1.6% year-on-year in the first three months of the year, the government reported Wednesday in a slight cut from its previous estimate for the January-March quarter.

It was the first decline in gross domestic product — the broadest measure of economic output — since the second quarter of 2020, into the depths of the COVID-19 recession, following a strong 6.9% growth in the last year. three months from 2021. is at its highest point in 40 years and consumer confidence is falling.

Last month, the Department of Commerce had set GDP growth for the first quarter at 1.5%. But on its third and final estimate Wednesday, the ministry said consumer spending — which accounts for about two-thirds of economic output — was significantly weaker than previously calculated, growing at an annual rate of 1.8% instead of the 3.1 % estimated in May. †

This was partly offset by a revision of the calculation of operating inventories. Commerce said the reduced restocking of the company’s shelves had shaved less than 0.4 percentage points from growth in the first quarter, down from the 1.1 percentage points estimated in May.

Still, the negative GDP figure is unlikely to signal the start of a recession, and economists expect growth to resume later this year.

The dip in the first quarter doesn’t say much about the underlying health of the economy: a wider trade deficit – a reflection of the US hunger for foreign goods and services – reduced the change in GDP from January to March by 3.2 percentage points.

Business investment grew by a healthy 5%.

Still, the US economy, which has made a solid recovery from the brief but devastating 2020 coronavirus recession, is under pressure as the Federal Reserve raises interest rates to rein in inflation, which is at a 40-year high. to keep.

The rebound surprised companies and an unexpected increase in customer orders overwhelmed factories, ports and freight yards, leading to shortages, delays and higher prices. In May, consumer prices rose 8.6% year-on-year, the largest year-on-year increase since 1981.

In response, the Fed accelerated its plan to raise interest rates and raised its short-term benchmark by three-quarters of a percentage point, the strongest increase since 1994. The Fed hopes to achieve a so-called soft landing, slowing economic growth. just enough to bring inflation back to the 2% target without triggering a recession.

Higher borrowing costs are already putting pressure on the housing market.

For the full year, the economy is still expected to grow at a decent rate: 2.5%, according to the World Bank.

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