The US economy shrank in the first three months of the year, even as consumers and businesses spent at a solid pace, the government reported on Thursday, a marginal drop from its previous estimate for the January-March quarter.
Last quarter’s decline in US GDP, the largest gauge of economic output, does not signal the start of a recession. The contraction was caused, in part, by a widening trade gap: The nation spent more on imports than on American exports than on other countries.
Also contributing to the weakness was the slow movement of goods into stores and warehouses, which built up their inventories in the previous quarter for the 2021 holiday shopping season.
Analysts say the economy is likely to revive in the current April-June quarter.
The Commerce Department estimated the economy contracted at a 1.5% annual pace from January to March, a revision slightly below its earlier estimate of 1.4% released last month. This was the first decline in GDP since the second quarter of 2020 in the depths of the COVID-19 slowdown and after a strong 6.9% expansion in the last three months of 2021.
The nation is caught in the painful grip of high inflation, which has caused particularly severe hardships for low-income households, many of them people of color. Although many American workers are receiving massive wage increases, in most cases their wages do not keep pace with inflation. In April, consumer prices rose 8.3% from a year earlier, just below the fastest such increase in four decades, set a month earlier.
High inflation is also posing a political threat to President Joe Biden and Democrats in Congress as the midterm elections near. A poll this month by the Associated Press-NORC Center for Public Research found that Biden’s approval rating has hit the lowest point of his presidency, with only 39% of adults acknowledging his performance with inflation as an often cited contributing factor. .
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