U.S. Economy Shrank in First Quarter - WSJ

  

Category:  News & Politics

Via:  vic-eldred  •  4 weeks ago  •  10 comments

By:   Sarah Chaney Cambon (WSJ)

U.S. Economy Shrank in First Quarter - WSJ
The U.S. economy shrank at a 1.4% annual rate in the first quarter, the Commerce Department said Thursday, its first contraction since early in the pandemic.

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The U.S. economy shrank at a 1.4% annual rate in the first quarter, its first contraction since early in the pandemic.

Gross domestic product was down sharply from a 6.9% annual growth rate in the fourth quarter, the Commerce Department said Thursday. The decline in first-quarter gross domestic product marked the weakest quarter since spring 2020, when the Covid-19 pandemic and related shutdowns drove the U.S. economy into a deep—albeit short—recession.

The decline in GDP stemmed from 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. A  widening trade deficit —with the U.S. importing far more than it exports—also pushed growth lower. Fading government stimulus spending related to the pandemic also 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.


“It’s really hard for the economy to grow rapidly once you’ve recovered to a substantial degree,” said David Berson, chief economist for Nationwide Mutual Insurance Co.

Also weighing on growth are rising interest rates as the Federal Reserve combats inflation. Central bank officials lifted their benchmark rate in March by a quarter percentage point from near zero, and they  have signaled more increases are likely to follow .

Looking ahead, economists surveyed by The Wall Street Journal estimate GDP rising 2.6% in the fourth quarter of 2022 from a year earlier, matching 2019 annual growth, but logging in well below 5.5% growth recorded last year.

The labor market  is a key source of economic strength right now. Jobless claims—a proxy for layoffs—are hovering near historically low levels as employers cling to employees amid a shortage of available workers. Businesses are hiring and ramping up wages, supporting consumer spending, the economy’s main driver.

High inflation is cutting into households’ purchasing power. Consumer prices rose 8.5% in March from a year earlier, a four-decade high. Elevated inflation is wiping away pay gains for many workers: average hourly earnings were up 5.6% over the same period.

Fast-rising prices are also challenging many businesses.

Cratex Manufacturing Co., a 100-person manufacturer, makes and sells industrial abrasives for other manufacturers to use in the production of steel mills, jet-engine blades and metal castings. The San Diego-based company has seen prices for materials it buys—such as resin and rubber—rise between 5% and 30% since last fall, said Ricker McCasland, president of Cratex.

At the same time, Cratex has had to ramp up wages to retain workers.

“It’s a race to stay ahead of all of those increasing costs,” Mr. McCasland said. He added price increases for raw materials have outpaced Cratex’s ability to recoup them through its own price increases.

While recognizing the rising risk of a downturn,  most economists surveyed by the Journal  in April said they still think the Fed will be able to rein in inflation without triggering a recession. The economy is positioned to withstand higher interest rates, given unemployment near record lows, steadily rising incomes and relatively subdued levels of consumer debt, they say.

Still, the central bank  has never lowered inflation as much  as it is setting out to do now without causing a recession. Fed officials say they can curb employer demand for workers without causing layoffs, and tamp down inflation without a recession.

Although Americans are cutting back purchases of big-ticket items, they are increasingly spending on services amid lower Covid-19 case totals and the lifting of remaining pandemic restrictions. Travel is one key example: Hotel occupancy rates are up from January, and more people are also boarding planes.

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.”


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Vic Eldred
Professor Principal
1  seeder  Vic Eldred    4 weeks ago
For some, it’s a matter of historical comparison. Former Treasury Secretary Lawrence Summers emphasized in a recent   Washington Post   op-ed   that current economic conditions are undeniably reminiscent of previous pre-recession periods in U.S. history.

“Over the past 75 years, every time inflation has exceeded 4% and unemployment has gone below 5%, the U.S. economy has gone into a recession within two years,” Summers wrote.

Today, the U.S. inflation rate is   nearing 8% , and the   unemployment rate   fell to just 3.6% in March. As a result, Summers now sees an   80% chance   of a U.S. recession by next year.

 
 
 
Right Down the Center
Freshman Guide
1.1  Right Down the Center  replied to  Vic Eldred @1    4 weeks ago
“Over the past 75 years, every time inflation has exceeded 4% and unemployment has gone below 5%, the U.S. economy has gone into a recession within two years,” Summers wrote.

They will start spinning it as future Putin recession any day now.

 
 
 
Vic Eldred
Professor Principal
1.1.1  seeder  Vic Eldred  replied to  Right Down the Center @1.1    4 weeks ago

It's Putin, Trump or the world economy...."c'mon man."

 
 
 
Right Down the Center
Freshman Guide
1.1.2  Right Down the Center  replied to  Vic Eldred @1.1.1    4 weeks ago

I will be surprised if they don't try to sneak "racism" and "disinformation" in there someplace also.

 
 
 
Vic Eldred
Professor Principal
1.1.3  seeder  Vic Eldred  replied to  Right Down the Center @1.1.2    4 weeks ago

I'm sure about "disinformation" along with the 51 lying hacks that show up on command. The "racism" charge comes when all else fails.

 
 
 
Vic Eldred
Professor Principal
2  seeder  Vic Eldred    4 weeks ago

In Conclusion:

All eyes will be on the next quarter

because...

Two consecutive negative quarters = A Recession.

 
 
 
Snuffy
Senior Guide
3  Snuffy    4 weeks ago

The NewYork Times is already spinning it.

The U.S. economy contracted in the first three months of the year, as supply constraints at home, demand shortfalls abroad and rapid inflation worldwide weighed on an otherwise resilient recovery.

But the negative number masked evidence of a recovery that economists said remained fundamentally strong.

And they appear to be getting hammered for defending this administration.  Anybody got the over/under for weeks until they go the route of CNN and end up closing the doors?

 
 
 
Vic Eldred
Professor Principal
3.1  seeder  Vic Eldred  replied to  Snuffy @3    4 weeks ago

Just let it happen next quarter!

 
 
 
squiggy
Sophomore Quiet
4  squiggy    3 weeks ago

This will really hurt the left because Squiggy's TSP shrank 30% under last year.

 
 
 
Tessylo
Professor Principal
4.1  Tessylo  replied to  squiggy @4    3 weeks ago

[deleted]

 
 

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