The surprising contraction in the U.S. economy in the first quarter has been written off by Wall Street as a misleadingly weak number that in no way signals an oncoming recession. So how well did the economy really perform?
Not bad, it seems. Maybe even pretty good, economists say.
“The first quarter was not as bad as it looks at first glance,” said chief economist Bill Adams of Comerica Bank in Toledo, Ohio.
Let’s start with the 1.4% drop in gross domestic product, the headline number that gets all the attention. GDP is the official scorecard of sorts for the economy.
Most of the decline was tied to a record U.S. trade deficit, shrinking inventories and reduced government spending. Added altogether these oft-volatile categories subtracted a whopping 4.5 points from GDP.
The real strength of the economy, however, lies in consumer spending and business investment. And both were quite sturdy in the first quarter of the year.
Consumer spending rose at a healthy 2.7% pace after inflation — the highest in three quarters — and business investment jumped 7.3%. That was the biggest increase in a year.
“Although GDP fell in the first quarter, the U.S. economy is not in recession,” chief economist Gus Faucher of PNC Financial Services said. “A few temporary factors — trade, inventories, and government — caused the economy to shrink.”
A better way to assess the economy’s performance, economists say, is to look at final sales to U.S. customers. Simply put, this measure strips out exports and inventories and focuses on how much stuff Americans are buying from U.S. and foreign sellers.
These sales rose at a solid 2.6% annual clip, up considerably from the second half of 2021.
Strip out reduced U.S government spending, and final sales to private customers — that is, to households and businesses — rose an even stronger 3.7%.
Looked at that way, the U.S. economy actually strengthened from January to March as compared with the end of last year, when headline GDP numbers were much higher. GDP rose at a 6.9% rate in the fourth quarter of 2021 and 2.3% in the third quarter.
Can the good times last?
Economists predict GDP will accelerate to a 2% clip in the second quarter, but, as always, the devil will be in the details. The U.S. could be facing tougher times, with the Federal Reserve raising interest rates and more turbulence overseas.
Source: marketwatch.com
