The Perfect Enemy | US economy shrank by 1.4% in Q1 in abrupt reversal - Daily Mail
May 27, 2022

US economy shrank by 1.4% in Q1 in abrupt reversal – Daily Mail

US economy shrank by 1.4% in Q1 in abrupt reversal  Daily MailView Full Coverage on Google News

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Joe Biden says GDP shrinking 1.4% is due to ‘enormous growth’ being hit by Covid, Putin and global inflation as he admits he IS worried about recession – but claims the economy is still resilient

  • Biden blamed ‘technical factors’ and other global issues for shrinking economy 
  • Real GDP shrank at a 1.4% annual rate for the first quarter of 2022
  • It is the first time the US economy has contracted since the pandemic struck
  • A widening trade deficit weighed on growth, with exports shrinking
  • The surprise reversal followed a year of the fastest growth since 1984
  • Still, consumer and business spending remains strong and job market is robust
  • An imminent recession seems unlikely, though concerns are mounting 

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President Joe Biden has blamed ‘technical factors’ after the U.S. economy shrank last quarter for the first time since the pandemic recession struck two years ago, marking an abrupt reversal from a period of roaring growth.

Gross domestic product – the nation’s total output of goods and services – fell at a 1.4 percent annualized rate in the first quarter of this year, the Commerce Department said in its advance GDP estimate on Thursday. 

Speaking to reporters, Biden touted strong consumer spending and low unemployment numbers, and argued that the contraction was but a blip after a period of the strongest growth since 1984. 

‘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,’ Biden said.

‘No one is predicting a recession now, they are, some are predicting a recession in 2023. I’m concerned about it,’ he added.

‘But I know one thing, if our Republican friends are really interested in doing something about dealing with economic growth, they should help us continue to lower the deficit,’ Biden continued, calling for ‘a tax code that is actually one that works.’

President Joe Biden has blamed ‘technical factors’ after the U.S. economy shrank last quarter for the first time since the pandemic recession struck two years ago

The U.S. economy shrank last quarter for the first time since the pandemic recession

The U.S. economy shrank last quarter for the first time since the pandemic recession

In an earlier statement responding to the concerning new data, Biden insisted that the US economy ‘continues to be resilient in the face of historic challenges.’ 

‘While last quarter’s growth estimate was affected by technical factors, the United States confronts the challenges of COVID-19 around the world, Putin’s unprovoked invasion of Ukraine, and global inflation from a position of strength,’ the president said. 

‘Putin, COVID-19, ‘global inflation’ and… ‘technical factors’: Biden’s GDP comments in full 

‘The American economy — powered by working families — continues to be resilient in the face of historic challenges. Last quarter, consumer spending, business investment, and residential investment increased at strong rates. The number of Americans on unemployment insurance remains at the lowest level since 1970. 

‘Later this morning, I will meet with small business owners who are creating and growing their businesses at a historic rate. While last quarter’s growth estimate was affected by technical factors, the United States confronts the challenges of COVID-19 around the world, Putin’s unprovoked invasion of Ukraine, and global inflation from a position of strength. 

‘We need to keep making progress — cutting costs for working families, making more in America, and creating good-paying jobs you can raise a middle-class family on. Congressional Republicans, led by Senator Scott, believe the way to fight these global challenges is by raising taxes on middle class families, including half of small business owners. I have a different approach. 

‘Congress should send to my desk a bipartisan innovation bill to bolster our supply chains and make more in America. And Congress needs to pass legislation to lower costs and lower the deficit, reducing families’ prescription drug and utility bills and restoring fairness to our tax code — without raising taxes on anyone making less than $400,000 per year. That’s how we grow our economy and strengthen the middle class.’

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Biden did not elaborate on what ‘technical factors’ he blamed for shrinking growth, but the Commerce Department said that a growing trade deficit and lower business spending on inventories were key factors.  

The latest economic report on Thursday surprised economists, who had projected growth of 1 percent, and will present fresh challenges for Biden and congressional Democrats as they head into the mid-term elections. 

Biden said in his statement that his prescription for the economy included ‘cutting costs for working families, making more in America, and creating good-paying jobs you can raise a middle-class family on.’ 

He called on Congress to pass a raft of Democratic policy priorities that have been stalled in negotiations.  

Last quarter’s slump in economic output reflected a widening trade deficit, with exports shrinking and imports growing, and slower pace of inventory accumulation, the Commerce Department said in its report.

The new estimate of the first quarter’s GDP fell far below the 6.9 percent annual growth in the fourth quarter of 2021. 

For 2021 as a whole, the economy grew 5.7 percent, the highest calendar-year expansion since 1984.

The economy is facing pressures that have heightened worries about its fundamental health and raised concerns about a possible recession. 

Inflation is squeezing households as gas and food prices spike, borrowing costs mount and the global economy is rattled by Russia’s invasion of Ukraine and China’s COVID lockdowns.

Economists polled by Reuters had forecast the economy growing at a 1.1 percent rate last quarter. Estimates ranged from as low as a 1.4 percent rate of contraction to as high as a 2.6 percent growth pace. 

Still, the U.S. job market – the most important pillar of the economy – remains robust. 

And in the January-March quarter, businesses and consumers increased their spending at a 3.7 percent annual rate after adjusting for inflation.

The steady spending suggested that the economy could keep expanding this year even though the Federal Reserve plans to raise rates aggressively to fight the inflation surge. 

Some economists consider that spending trend a better gauge than overall GDP of the economy’s underlying strength. 

Most analysts expect the steady pace of spending to sustain the economy´s growth, though the outlook remains highly uncertain.

It would take a second consecutive quarter of negative GDP growth to confirm a recession. While most economists expect the US economy to avoid an official recession this year, the risks are rising. 

Last quarter´s slowdown followed vigorous growth in the final quarter of 2021, driven by a surge in inventories as companies restocked in anticipation of holiday season spending. 

Businesses did continue rebuilding inventories last quarter, but they did so more slowly, hindering growth in the process.

US quarterly real GDP growth is seen from 1980 to the present in the chart above

US quarterly real GDP growth is seen from 1980 to the present in the chart above

Imports also surged in the January-March quarter as businesses and consumers bought more goods from abroad while U.S. exports rose more slowly. 

That disparity widened the trade deficit and subtracted from the quarter’s growth.

The weakness of the economy´s overall growth rate contrasts with the vitality of the job market. 

At 3.6 percent, the unemployment rate is nearly back to the half-century low it reached just before the pandemic. Layoffs have reached historically low levels as employers, plagued by labor shortages, have held tightly onto their workers.

Strengthening labor market conditions were reinforced by a separate report from the Labor Department on Thursday showing initial claims for state unemployment benefits fell 5,000 to a seasonally adjusted 180,000 for the week ended April 23.

Economists had forecast 180,000 applications for the latest week. According to data from Bank of America Securities, lower-income consumers, who tend to be disproportionately affected by inflation, were showing greater resilience.

Wages are rising steadily as companies compete to attract and retain workers, a trend that has helped maintain consumers´ ability to spend. 

The US trade deficit, also known as the balance of trade, is seen since 2002 above

The US trade deficit, also known as the balance of trade, is seen since 2002 above

A widening trade deficit contributed to the slowing growth. Cargo ships are seen at the Port of Los Angeles on January 19, 2022 in San Pedro, California

A widening trade deficit contributed to the slowing growth. Cargo ships are seen at the Port of Los Angeles on January 19, 2022 in San Pedro, California

The consumer price index increased 8.5% in March from a year ago, a 41-year high

The consumer price index increased 8.5% in March from a year ago, a 41-year high

At the same time, though, that spending has helped fuel inflation, which reached 8.5 percent in March compared with 12 months earlier.

Fed Chair Jerome Powell has signaled a rapid series of rate increases to combat higher prices. 

The Fed is set to raise its key short-term rate by a half-percentage point next week, the first hike that large since 2000. 

At least two more half-point increases – twice the more typical quarter-point hike — are expected at subsequent Fed meetings. They would amount to one of the fastest series of Fed rate hikes in decades.

Powell is betting that with job openings at near-record levels, consumer spending healthy and unemployment unusually low, the Fed can slow the economy enough to tame inflation without causing a recession. 

Yet most economists are skeptical that the Fed can achieve that goal with inflation as high as it is.

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