News Alert: Real GDP Contracts in Q1

Real GDP contracted by an annualized rate of 1.4% in the first quarter of 2022 as supply disruptions, labor shortages, and high inflation slowed the pace of the recovery. This is a significant slowdown from Q4's 6.9% (annualized) growth.?

The details show that demand remained much stronger than the headline suggests. Consumer spending, business investment, and residential investment rose. Growth was pulled lower by a sharp widening in the trade deficit, drop in government spending, and a pullback in inventory investment.?

We expect first quarter growth to mark the start of a longer-term economic moderation reflecting the disappearance of many pandemic-related factors that fueled growth last year—including government stimulus and economic reopenings.?

While the possibility of a 2023 recession can't be ruled out, current momentum in the economy remains too strong for things to suddenly sputter out. The labor market remains as tight as ever, which is manifesting in healthy wage gains helping to partially insulate households from higher food and energy costs. Moreover, recent data points on housing construction, industrial production, and durable goods orders all point to continued momentum on the domestic demand front as we move into the second quarter. We look for GDP to rebound to positive growth in the second quarter.