WASHINGTON (AP) – The U.S. economy shrank in the first three months of the year, and faces threats from high inflation and rising interest rates, yet economists foresee a return to growth for the rest of 2022 based on the strength of the job market and consumer spending.
The first quarterly decline in gross domestic product since the pandemic hit in 2020 – a 1.4% drop on an annualized basis – is not likely a prelude to recession, economists say. That may bring little comfort to President Joe Biden and Democrats, who face mid-term elections this year in which rising prices for food, energy and other essentials will be a major theme of Republican opposition.
Two trends were key drivers of the U.S. economy’s decline last quarter, according to Thursday’s report from the Commerce Department:
– Imports soared nearly 20% as Americans spent heavily on foreign-made goods, while exports fell almost 6% as growth slowed overseas – a widening of the trade deficit that subtracted 3.2 percentage points from GDP.
– Businesses had built inventories aggressively ahead of last year’s holiday shopping season, when they feared pandemic-related supply shortages, so they restocked more slowly at the start of 2022, denting GDP by 0.8 percentage points.