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The US economy is shrinking and threatening, but growth may continue | Associated Press

Washington (AP) — US economy shrinks in the first three months of the year, Faced with the threat of high inflation When Rising interest ratesThat said, economists predict that growth will return for the rest of 2022, based on the strength of the job market and consumer spending.

According to economists, a quarterly decline in GDP (the first contraction since the 2020 pandemic hit) is unlikely to signal a recession.It may bring A little comfort to President Joe Biden For Democrats facing mid-term elections this year, rising prices for food, energy and other necessities will be a major opposition to the Republicans.

According to the report, two trends were the main factors behind the decline in the US economy in the previous quarter. Thursday’s report from the Department of Commerce:

— Imports surged by nearly 20% as Americans spent so much on foreign-made goods, but exports fell by nearly 6% as overseas growth slowed. The trade deficit widened, deducting 3.2 percentage points from GDP.

— Companies were aggressively building inventories ahead of last year’s holiday shopping season, fearing a pandemic-related supply shortage, delaying replenishment in early 2022 and lowering GDP by 0.8 percentage points.

As a result, first-quarter GDP (gross domestic product and services) was well below the 6.9% annual growth rate for the fourth quarter of 2021.

However, rising wages supported strong household spending, and higher profits boosted corporate investment. These factors suggest strong fundamentals of the US economy, even in the face of challenges from pandemics, the war in Ukraine, and the Federal Reserve’s plans to raise interest rates to combat inflation.

Lydia Busser, head of the US economist at Oxford Economics, said: “The details show an economy with resilience in the face of Omicron, prolonged supply constraints, and a solid underlying strength that showed high inflation.”

The US economy is in an unusual and challenging position.

The employment market, the most important pillar of the economy, remains strong, with unemployment close to its 50-year low of 3.6% and wages rising steadily. Also, in the January-March quarter, businesses and consumers increased spending at an annual rate of 3.7%, adjusted for inflation.

Economists see these trends as a better indicator of the core strength of the economy than the latest GDP figures.

Still, a serious threat has emerged. Supply chain turmoil in China and elsewhere remains a reality in the pandemic era, and the war in Ukraine has contributed to higher inflation and reduced consumer purchasing power.Last month, price 8.5% increase from the previous yearThe fastest such rise in 40 years.

“We are at a turning point in the economy,” said Gregory Daco, chief economist at tax advisory firm EY-Parthenon. “The pace of growth is slow.”

The weaknesses in the first quarter contrast with the strong recovery from last year’s pandemic, partly backed by huge government aid and ultra-low interest rates. With the end of stimulus and other government support, consumer spending slowed from a volatile pace in the first half of last year.

Negative GDP numbers in the previous quarter are also below President Biden’s important political message. The president pointed out rapid growth as a counterpoint to the surge in inflation. Further exacerbating Biden’s difficulties, Russia’s invasion of Ukraine and the rise of COVID incidents abroad are putting pressure on the economy and increasing inflationary pressure. Many companies also struggle to get the parts and consumables they need from their intertwined supply chains.

MOOYAH, a hamburger chain based in Plano, Texas, has increased the cost of meat, bread and packaging and raised wages to attract and retain workers.

Doug Wilmers, president of the company, said:

Despite the pandemic-related supply chain obstacles, MOOYAH plans to open 20 more restaurants this year as well. “We have a great deal of faith in American consumers and the American economy,” he said.

Imports surged in the first quarter, but the blockade of COVID in China could continue to be in short supply this year. Ford and General Motors said this week they still couldn’t get all the computer chips they needed, sacrificing sales and forcing them to temporarily close their factories.

According to the International Monetary Fund, growth in the global economy is expected to slow this year. The Ukrainian War and COVID predict that global growth will drop from 6.1% last year to 3.6% this year.

Thursday’s GDP report showed that consumers are adjusting their spending patterns as the pandemic fades and food and gas costs dig into households. After adjusting for inflation, spending on clothing, gasoline and groceries declined in the first quarter. However, Americans spent more on services such as travel and eating out.

The Fed hoped that such changes would reduce inflation, as prices of goods have skyrocketed over services over the past year. But now, the prices of flights, hotels and restaurants are also rising.

Federal Reserve Chair Jerome Powell has announced plans for a series of rapid rate hikes to combat higher prices. The Federal Reserve will raise key short-term interest rates by half a percentage point next week. This is the first increase since 2000. At least two more halves are expected (twice the normal quarterly increase). At a subsequent Fed meeting. They will be one of the fastest Fed rate hikes in decades.

Powell is convinced that the Fed has near-record levels of jobs, consumer spending is healthy and unemployment is unusually low. Can slow down the economy enough to curb inflation Without causing a recession. Whether the Fed can do that is one of the major tests of the US economy in 2022.

The US economy is shrinking and threatening, but growth may continue | Associated Press

Source link The US economy is shrinking and threatening, but growth may continue | Associated Press

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