Business

The GDP fell 0.4% during the first quarter. This is 1.4% annualized. AP Photo/Rogelio V. Solis

By Ben Casselman, New York Times Service

The U.S. economy contracted in the first three months of the year, but strong consumer spending and continued business investment suggested that the recovery remained resilient.

Gross domestic product, adjusted for inflation, declined 0.4% in the first quarter, or 1.4% on an annualized basis, the Commerce Department said Thursday. That was down sharply from the 1.7% growth (6.9% annualized) in the final three months of 2021, and was the weakest quarter since the early days of the pandemic.

The decline was mostly a result of the two most volatile components of the quarterly reports: inventories and international trade. Growth was also affected by lower government spending. The underlying demand measures showed strong growth.

Most important, consumer spending, the engine of the U.S. economy, grew 0.7% in the first quarter despite the omicron wave of the coronavirus, which restrained spending on restaurants, travel and similar services in January.

“Consumer spending is the aircraft carrier in the middle of the ocean — it just keeps plowing ahead,” said Jay Bryson, chief economist for Wells Fargo.

In the first quarter, slower growth in inventories shaved close to a percentage point off GDP growth. Companies raced to build up inventories in late 2021 to make sure supply-chain disruptions did not leave them with bare shelves during the holiday season. This meant that they didn’t have to do nearly as much stocking in the new year.

The ballooning trade deficit, meanwhile, took more than 3 percentage points away from GDP growth in the first quarter. As imports are not included in gross domestic product due to their production abroad, they have increased rapidly as U.S. customers have continued spending. However, exports have lagging due to weaker economic growth overseas.

The measure of underlying economic growth that excludes the impact of trade and inventories, increased 0.6% in quarter one, adjusted for inflation. This was a slight acceleration from last year.

“The moral of the story is that the omicron wave, the war in Ukraine and new lockdowns in China were more costly for growth abroad than they were at home,” said Diane Swonk, chief economist for the accounting firm Grant Thornton. It actually accelerated.” It actually accelerated.”

This article originally appeared in The New York Times.

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