The U.S. economy contracted in the first three months of 2022 as the economy was battered by a surge in Covid-19 cases from the Omicron variant, ongoing supply chain problems, surging fuel prices, and a flood of imports.
The Burea of Economic Analysis said on Thursday that Gross Domestic Product decreased at an annual rate of 1.4 percent in the first quarter of 2022. Economists had expected the economy to grow 1.1 percent, so this was far worse than expected.
Private inventory investment, exports, and government spending fell in the first quarter. Imports, which get subtracted from GDP because they do not represent U.S. production, surged.
Personal consumption expenditures and real estate spending increased, suggesting that despite the slowdown in growth there was no let-up in inflationary pressures. That raises the danger that the economy is heading toward stagflation, where growth lags below trend and inflation remains above trend.
Inflation ran hot in the first quarter. The Personal Consumption Expenditure price index, which is the Federal Reserve’s preferred gauge of price stability, rose 7.0 percent, up from 6.4 percent in the fourth quarter of last year. Excluding the volatile categories of food and energy, prices were up 5.2 percent, up from 5.0 percent at the end of 2021.
Income lagged inflation. Real disposable income fell two percent in the quarter. The personal saving rate fell to 6.6 percent, down from 7.7 percent at the end of last quarter.
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