U.S. GDP shrinks 1.5% in first quarter of 2022

The Bureau of Labor Statistics released revised data released on Thursday shows the U.S. economy contracted by 1.5% on an annualized basis in the first quarter of 2022. Economists surveyed by Refinitiv were expecting a seasonally adjusted annual contraction of 1.3%.

The new downward revision for gross domestic product, the broadest measure of goods and services produced across the economy, comes after a previously reported 1.4% contraction. It was the first drop in GDP since the second quarter of 2020 in the depths of the COVID 19 recession and followed a robust 6.9% expansion in the final three months of 2021.

The nation spent more on imports from other countries than it did on U.S. exports, due to the fact that the country spent more on imports from other countries. The trade gap slashed the first quarter GDP by 3.2 percentage points. The restocking of goods in stores and warehouses, which had built up their inventories in the previous quarter for the 2021 holiday shopping season, knocked down nearly 1.1 percentage points off the January-March GDP.

Inflation continues to run near a 40 year high and weigh on growth, with the consumer price index, a wide-ranging measure of goods and services, such as food, autos, gasoline, health care and rent, rising 8.3% in April from a year ago. The price of the product went up 0.3% in the one month period from March. Average hourly earnings dropped by 0.1% in March, when accounting for the inflation spike. Consumer spending grew by 3.1% from January through March on an annual basis despite the slowing growth and record-high inflation. More than 400,000 jobs have been added in the last 12 months, and the unemployment rate is near a half-century low.

The economy is widely believed to have resumed its growth in the current quarter. According to a survey released last month, 34 economists told the Federal Reserve Bank of Philadelphia that GDP will grow at a 2.3% annual pace from April through June and 2.5% for all of 2022. Their forecast fell from the 4.2% growth estimate for the current quarter in the Philadelphia Fed's previous survey in February.

The Congressional Budget Office said that GDP will grow by 3.1% in 2022, due to strong consumer spending and demand for services. The budget office expects growth to slow down in the coming years, forecasting a GDP of 2.2% in 2023 and 1.5% in 2024.

Inflation will remain elevated in the near-term, with the consumer price index expected to hit 4.7% for the whole of 2022, according to the CBO. That is down slightly from the 6.7% recorded in 2021, the highest level in four decades, but it's still higher than the Federal Reserve wants. According to the CBO, inflation is not expected to fall to the Fed's preferred level of 2% until 2024.

Minutes from the U.S. central bank's May 3 -- 4 meeting released on Wednesday show that policymakers stressed the need to raise interest rates quickly in order to bring consumer prices closer to their 2% goal. The benchmark federal fund rate was raised by 50 basis points earlier this month, and officials agreed that similarly sized hikes are on the table at upcoming meetings in June and July.

The Fed is banking on its ability to engineer a so-called soft landing: Raising borrowing rates enough to slow growth and cool inflation without causing a recession. Many economists are skeptical that the central bank can pull it off. More than half of the economists surveyed by the National Association for Business Economics predict that the U.S. economy will sink into recession within a year.