US economic growth contracted 1.4% on an annualized basis in the first quarter of 2022 as the Omicron variant of COVID-19 and reduced government spending hit consumers and businesses, data showed the government on Thursday.
The data was much worse than the modest increase analysts had expected after the economy grew 6.9% in the last quarter of 2021.
The US faces record inflation as it recovers from the COVID-19 pandemic, even as prices for fuel and other components soar due to Russia’s invasion of Ukraine and the global supply shocks it sparks. Fears of a recession in the world’s largest economy woke the world up. .
Ian Shepherdson of Pantheon Macroeconomics said the lag last quarter was partly due to companies importing more to replenish inventories and growth could pick up in the second quarter of 2022.
“The economy is not going to enter a recession. Net trade was hit by a surge in imports, especially of consumer goods, as wholesalers and retailers tried to restock,” he wrote in an analysis.
The Commerce Department said the decline in GDP was the result of lower private investment in inventories, government spending and exports, and a rise in imports.
Durable goods drove the rise in imports, while the report says the private investment gap consisted mainly of wholesale goods, particularly motor vehicles, which were in short supply due to a global shortage of semiconductors.
Non-durable consumer goods exports fell, although the data suggest this was offset by a rise in business services, particularly financial services.
The drop in government spending was driven both by a drop in defense spending and the phasing out of government programs like the Child Tax Credit, which provided a payment to families with children.