U.S. GDP Slumps 1.5% In Q1, Slightly More Than Previously Estimated

Economic activity in the U.S. slumped by slightly more than previously estimated in the first quarter of 2022, according to revised data released by the Commerce Department on Thursday.

The Commerce Department said real domestic product slid by 1.5 percent in the first quarter compared to the previously reported 1.4 percent drop. Economists had expected the decrease in GDP to be revised to 1.3 percent.

The slightly bigger than expected pullback came after GDP skyrocketed by 6.9 percent in the fourth quarter of 2021.

Downward revisions to private inventory investment and residential investment contributed to the slightly bigger than previously estimated decrease, while the jump in consumer spending was upwardly revised to 3.1 percent from 2.7 percent.

The Commerce Department said the slump in GDP in the first quarter reflected decreases in private inventory investment, exports, and government spending along with an increase in imports, which are a subtraction in the calculation of GDP.

Increases in consumer spending nonresidential fixed investment, and residential fixed investment helped limit the downside.

“The details of the report continue to point to an economy with solid underlying strength and that demonstrated resilience in the face of Omicron, lingering supply constraints and high inflation,” said Lydia Boussour, Lead US Economist at Oxford Economics.

She added, “Stripping out trade and inventories, final sales to domestic purchasers – a better gauge of domestic momentum – was revised slightly higher to 2.7%.”

Meanwhile, the report showed the annual rate of growth in core consumer prices, which exclude food and energy, was unrevised at 5.2 percent.

The consumer price growth in the first quarter still represents an acceleration from the 4.6 percent jump seen in the fourth quarter, with prices surging at the fastest rate since 1983.

“While we still expect the Fed to steer the economy toward a soft landing, downside risks to the economy and the probability of a recession are increasing,” said Boussour.

She continued, “A more aggressive pace of Fed rate hikes, a tightening in financial conditions, the ongoing war in Ukraine and China’s zero-Covid strategy increase the risk of a hard landing in 2023.”

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