It’s a wrap: U.S. first-quarter GDP shrank 1.6%. The second quarter isn’t looking much better

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The numbers: The first quarter is in the books: the economy contracted at an annual rate of 1.6%, according to the government’s final assessment. And the second quarter doesn’t look great either.

The contraction in gross domestic product – the official scorecard of the economy – was the first since the start of the pandemic in early 2020. Previously, the government placed the fall at 1.5%.

However, the decline in the number of headlines was a bit misleading. A record increase in the U.S. trade deficit was largely responsible for the first-quarter GDP fall.

Consumer spending and business investment, the two major pillars of the economy, rose in the first quarter and indicated that the U.S. was still expanding at a modest pace.

The situation in the second quarter could turn the script upside down. GDP could have grown, but the details could have been weaker.

Large image: Second-quarter GDP is on track to grow by less than 1%, according to the latest Wall Street estimates. Some forecasters place growth at just 0.1%, but others see the economy expanding by 3% more.

The trade deficit has fallen from an all-time high and will not be such a big friction, but it looks like companies have slowed stockpiling and tempered investment. Consumer spending may also have softened a bit.

Regardless of where second-quarter GDP comes from, the economy is likely to continue to slow. The Federal Reserve is raising interest rates to try to stifle the highest inflation in 40 years.

Higher borrowing costs often slow down the economy and sometimes even trigger recessions.

Key details: The main negative of the updated GDP report was a downward revision of consumer spending, the main driver of the economy. Expenditures increased 1.8% more smoothly compared to the 3.1% increase previously reported.

Household spending accounts for about 70% of U.S. economic activity.

Business fixed investment, another of the main arteries of the economy, was revised slightly upwards to show a growth rate of 7.4%.

Most of the other figures in the report changed little. Inflation rose 7.1% year-on-year during the first quarter and has accelerated since then.

Corporate earnings before adjusted taxes, meanwhile, fell at an annual rate of 2.2% in the first three months of 2022. It was the first decline in more than a year.

The government reviews GDP twice after the initial report and regularly reviews growth figures years later.

Market reaction: The Dow Jones Industrial Average DJIA,
and S&P 500 SPX,
they were scheduled to open higher on Wednesday’s operations.

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