After much discussion about the strength of the American economy during the last State of the Union, America was shocked to see the results of the recent GDP analysis.
The United States economy contracted in the first quarter, shocking many economists who believed that while growth would slow, it would not be negative. Data released by the Bureau of Economic Analysis showed the nation’s gross domestic product declined by 1.4% between January and March.
It was an abrupt reversal after the U.S. economy grew by 6.9% in the final quarter of 2021 and the worst performance since the second quarter of 2020 when the nation was in the midst of a recession due to the coronavirus pandemic.
While the decline surprised many economists, they are not worried that the U.S will fall back into a recession. Instead, they expect the economy to rebound during the spring and summer as many issues that caused the downturn will get resolved.
“This is noise; not signal. The economy is not falling into recession,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote to investors, according to CNBC. “Net trade has been hammered by a surge in imports, especially of consumer goods, as wholesalers and retailers have sought to rebuild inventory. This cannot persist much longer, and imports in due course will drop outright, and net trade will boost GDP growth in Q2 and/or Q3.”
The drop in GDP stemmed from a widening trade deficit, with the U.S. importing far more than it exports. A slower pace of inventory investment by businesses in the first quarter—compared with a rapid buildup of inventories at the end of last year—also pushed growth lower. In addition, fading government stimulus spending related to the pandemic weighed on GDP.
Despite the slip, many economists think that overall the economy remains on track to resume modest growth in the second quarter and beyond, in part because consumers and businesses are continuing to spend. Consumer spending, the economy’s main driver, rose at a 2.7% annual rate in the first quarter, a slight acceleration from the end of last year.
George Lewis, co-owner of Brass Lantern Inn in Stowe, Vt., is seeing a surge in demand. Visits to his bed-and-breakfast on Maple Street are running strong with rooms selling out some weekends this spring, a sharp shift from earlier in the pandemic when the inn relied on small-business aid to survive.
“People have called up: ‘Are you really sold out?’ ” Mr. Lewis said. “I’m like, ‘Yeah, yeah, we’re really sold out.’ ”
Still, Mr. Lewis is more concerned about business next year. For one, it isn’t clear where inflation will be, he said. Prices have already risen briskly for heating oil to warm rooms, as well as for the cheddar cheese Mr. Lewis uses in egg strata, a breakfast casserole he serves up on Saturdays.
Consumer spending is another wild card, he added.
“We don’t know what people’s pocketbooks can accommodate after this year,” he said. “Some people are spending…independent of what the cost is.”