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U.S. economic activity unexpectedly contracted for the first time since the second quarter of 2020 in the first three months of 2022, with lingering supply chain constraints, inflation, and disruptions amid Russia's war in Ukraine weighing on growth.
The Bureau of Economic Analysis (BEA) released its initial estimate of first-quarter U.S. gross domestic product (GDP) Thursday at 8:30 a.m. ET. Here were the main metrics from the report, compared to consensus data compiled by Bloomberg:
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GDP annualized, quarter-over-quarter: -1.4% vs. 1.0% expected, 6.9% in Q4
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Personal Consumption: 2.7% vs. 3.5% expected, 2.5% in Q4
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Core Personal Consumption Expenditures, quarter-over-quarter: 5.2% vs. 5.5% expected, 5.0% in Q4
The GDP report serves, as usual, as a backwards-looking overview of economic activity, capturing the January-through-March period. However, the metric is still an important indicator of the state of the U.S. economy at the start of this year — especially as some pundits now brace for the possibility of a recession in the near to medium term. A recession is typically considered two consecutive quarters of negative GDP growth.
“It is unfortunate that this GDP rate did not meet expectations, but unsurprising as the U.S. economy remains very volatile with geopolitical turbulence from the war in Ukraine, a global supply chain crisis, increasing inflation and the ongoing COVID-19 pandemic," Steve Rick, chief economist at CUNA Mutual Group, said in an email. "All of these factors have shrunk GDP growth rates around the globe.”
And indeed, some of the points used to bolster the case for a formal downturn weighed on the pace of growth in the first quarter. Inflation has run at its hottest rate since the early 1980s, pressuring consumers' propensity to spend. Plus, the Russia-Ukraine war has hit global supply chains that had yet to recover from the pandemic. More recently, a widespread COVID-19 outbreak that ramped up in China last month has also threatened to further hit supply chains and growth. And a surge in Omicron cases in the U.S. at the start of this year also impacted first-quarter GDP.
"In the first quarter, an increase in COVID-19 cases related to the Omicron variant resulted in continued restrictions and disruptions in the operations of establishments in some parts of the country," the BEA said in its report Thursday morning. "Government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased as provisions of several federal programs expired or tapered off."