Posted Apr 28, 2022, 3:35 PMUpdated on Apr 28, 2022, 3:44 PM
Air pocket in the US economy. After a strong end to 2021, activity in the United States recorded a surprise fall of 1.4% at an annualized rate in the first quarter, according to figures published Thursday by the Bureau of Economic Analysis (BEA), the service Department of Commerce statistics. While some economists did not rule out a decline in GDP, the consensus was expecting an increase of around 1% at an annualized rate.
Several factors explain this. “The decline in real GDP reflects declines in private investment in inventory, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP , have increased”, lists the BEA.
Household consumption, on the other hand, continued to hold up well, with an increase of 2.7% at an annualized rate, now boosted by services (+4.3%). The performance of the US economy is “weak on the outside, but robust on the inside (for now),” comments Gregory Daco, chief economist at EY Parthenon.
Jump in imports
Abroad, the imbalance between exports and imports of goods and services weighed heavily on growth at the start of the year, with a negative contribution of 3.2 points. In March, the trade balance deficit for goods alone widened further to a record level, to $125.3 billion (+$19 billion), under pressure from still bubbling imports.
Purchases by American companies to replenish their inventories were also much less vigorous than expected: this even weighed on growth by 0.8 points, notes the BEA. A result that could be partly attributable to still seized supply chains, without however reflecting the strength of domestic demand.
“Robust demand and still low inventory levels suggest that durable goods orders will continue to grow at a steady pace in the months to come” on the business side, Oxford Economics estimated at the start of the week. “Domestic activity has resisted soaring energy prices and broader inflationary pressures, supported by a surplus stock of savings and impressive wage growth,” he also pointed out.
Increase in key rates
The underperformance of the GDP will rekindle the fears of those who perceive the first warning signs of a recession . The global context has also deteriorated with the war in Ukraine, and the IMF has just revised down global growth forecasts to 3.6%. He expects the United States to grow by 3.7% this year.
The US labor market remains strong, with the unemployment rate almost back to its pre-pandemic level, at 3.6% of the labor force, and the labor market participation rate is picking up, at 62.4% in March, with a gain of nearly one point in one year. In March, some 431,000 net jobs were still created, particularly in services. And the continued lifting of health restrictions bodes well for a vibrant spring and summer.
The equation remains complex for the Federal Reserve. The dollar, which is approaching parity with the euro, is strengthening, taking advantage of concerns about the global environment and the Fed’s determination to bring inflation back to more reasonable levels. With consumer prices rising 8.5% (in March year on year), economists and financial markets expect the central bank to raise interest rates by half a point next week, during the meeting of its monetary policy committee. For its part, the White House and parliamentarians continue to put pressure on manufacturers so that they do not increase their prices beyond the cost increases.
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