WASHINGTON — The U.S. financial system shrank within the first three months of the yr, and faces threats from excessive inflation and rising rates of interest, but economists foresee a return to progress for the remainder of 2022 primarily based on the power of the job market and shopper spending.
The first quarterly decline in gross home product for the reason that pandemic hit in 2020 — a 1.4% drop on an annualized foundation — isn’t probably a prelude to recession, economists say.
That could deliver little consolation to President Biden and Democrats, who face mid-term elections this yr wherein rising costs for meals, power and different necessities will likely be a significant theme of Republican opposition.
Two developments have been key drivers of the U.S. financial system’s decline final quarter, based on Thursday’s report from the Commerce Department:
- Imports soared almost 20% as Americans spent closely on foreign-made items, whereas exports fell virtually 6% as progress slowed abroad — a widening of the commerce deficit that subtracted 3.2 proportion factors from GDP.
- Businesses had constructed inventories aggressively forward of final yr’s vacation procuring season, after they feared pandemic-related provide shortages, in order that they restocked extra slowly firstly of 2022, denting GDP by 0.8 proportion factors.
As a end result, the nation’s complete output of products and providers fell far under the 6.9% annual progress charge within the fourth quarter of 2021.
However, rising wages supported strong spending by households, and better earnings drove funding by corporations.
These components recommend sturdy fundamentals for the U.S. financial system, even within the face of challenges from the pandemic, the battle in Ukraine and the Federal Reserve’s plans to boost rates of interest to combat inflation.
“The report isn’t as worrisome as it looks,” stated Lydia Boussour, lead U.S. economist at Oxford Economics. “The details point to an economy with solid underlying strength that demonstrated resilience in the face of omicron, lingering supply constraints and high inflation.”
The job market — an important pillar of the financial system — stays strong, with the unemployment charge close to a 50-year low of three.6%, and wages rising steadily. In the January-March quarter, companies and customers elevated their spending at a 3.7% annual charge after adjusting for inflation.
Source: www.bostonherald.com”