Washington: US economy Contracted slightly higher than previously estimated in the first quarter amid record trade deficits and supply chain disruptions, government data showed on Wednesday.
The Commerce Department’s third estimate of GDP also showed some underlying moderation in the economy, with consumer spending revised lower and inventories higher than in the previous month. This amidst domestic demand and recession does not bode well for the economic outlook as the Federal Reserve aggressively tightens monetary policy to tame inflation.
Chris said, “The biggest impact from this report is that it leaves inventory in a more overbuilt position than before, putting second quarter GDP in negative territory, which is higher than yesterday’s figures for May.” consumption and consumer inflation and the April revision,” Chris said. Lou, chief economist at FHN Financial in New York.
Gross domestic product fell at a 1.6% annual rate in the previous quarter, a revised upward from the 1.5% decline recorded last month. Economists polled by Reuters had projected that the pace of contraction would not revise at 1.5%.
The economy was initially projected to contract at a rate of 1.4%. It grew at a strong 6.9% pace in the fourth quarter. GDP was up 2.7% from its level in the fourth quarter of 2019.
Consumer spending, which accounts for more than two-thirds of the economy, grew at a rate of 1.8% instead of the 3.1% pace reported last month. A downgrade refers to a downward revision in financial services and insurance as well as health care.
Spending on long-lasting goods such as motor vehicles and recreational goods was revised lower.
Businesses accumulated inventory at a rate of $188.5 billion instead of the $149.6 billion rate reported last month.
Consequently, growth in final sales to private home buyers, which does not include trade, inventory and government spending, was revised down to 3.0% in the previous quarter. This measure of domestic demand was previously reported to grow at a rate of 3.9%.
With consumer spending picking up in April, the economy appears to be recovering from a slowdown in the first quarter. Trade spending on equipment remained solid during May, while the goods trade deficit narrowed significantly as exports hit record highs. But the boom is losing momentum because of the Fed’s aggressive posture.
The US central bank this month raised its policy rate by three-quarters of a percentage point, its biggest increase since 1994. The Fed has raised its benchmark overnight interest rate by 150 basis points since March.
Retail sales declined in May, while housing starts and building permits declined. Consumer confidence fell to a 16-month low in June. May’s consumer spending report on Thursday could shed more light on second-quarter growth prospects, ranging from a 0.3% rate to as low as a 2.9% pace.
“It is highly unlikely that the economy is now in recession,” said Scott Hoyt, a senior economist at Moody’s Analytics in West Chester, Pennsylvania, despite a decline in first-quarter GDP and a clear weakness in output growth in the current quarter. ” “Job growth remains strong, investment is rising, both households and businesses have strong balance sheets.”
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