[Economics] US economy contracted in the first quarter of the year

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The US economy contracted 1.6% in the first quarter of the year

The US economy shrank 1.6% in the first quarter of the year, the government said on Wednesday, down slightly from its previous estimate.

It is the first contraction in Gross Domestic Product — the broadest measure of national economic output — since the second quarter of 2020, when the economy was mired in recession due to the coronavirus, and then comes a robust 6.9% expansion in the last three months of 2021. Inflation is at heights not seen in 40 years and consumer confidence is declining.

Last month, the Commerce Department estimated that the economy grew 1.5% in the first quarter. But in his third and final calculation on Wednesday, he said that consumer spending — which makes up some two-thirds of national economic activity — was much lower than he had calculated, growing at an annual rate of 1.8% and not 3. 1% as recommended in May.

That was partly offset by a new estimate on store inventories. The department had previously said the decline in inventories had shaved less than 0.4 percentage point off economic growth in the first quarter and not 1.1 percentage point as it had calculated in May.

Still, the contraction in GDP is probably not a sign of a recession, and experts expect the economy to continue growing for the rest of the year.

 

The contraction was due in large part to a factor that is not indicative of overall economic health: a larger trade deficit, reflecting America's appetite for foreign goods and products. Said deficit subtracted 3.2 percentage points from the variation in GDP between January and March.

Business investments grew by a robust 5%. Still, the US economy, which recovered from a brief but devastating recession at the start of the pandemic, is struggling as the Federal Reserve is raising interest rates to combat inflammation.

The sudden economic recovery caught businesses by surprise, and the sudden demand for products and services overwhelmed factories, ports and docks, causing delays, shortages and inflation. In May, consumer prices rose 8.6% compared to the same month a year earlier, the highest increase since 1981.

The US central bank responded by raising interest rates, including a three-quarter point increase, the steepest hike since 1994. The Fed aims to achieve a soft landing, that is, to put the economy to sleep enough to carry out the inflation to close to its 2% annual target without causing a recession.

High interest rates are already hitting the real estate market.

For the full year, the US economy is estimated to grow 2.5%, according to the World Bank.

 

Link: https://www.independentespanol.com/ap/economia-de-eeuu-se-contrajo-en-el-primer-trimestre-del-ano-b2112105.html