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The US economic slowdown at the start of the year was worse than expected as weak business activity and private investment failed to offset strong consumer spending, the Commerce Department said on Thursday.
First quarter GDP fell at a 1.5% annual rate, according to second estimate from the Bureau of Economic Analysis. That’s worse than the Dow Jones estimate of 1.3% and shortened from initial report 1.4%.
The downward revisions to both private inventories and residential investment offset the upward change in consumer spending. The increased trade deficit is also subtracted from the total GDP.
The drop in GDP represents the worst quarter since the second quarter of 2020 due to the pandemic, in which the US fell into a recession as the government imposed an economic shutdown to confront Covid-19. GDP plummeted 31.2% that quarter.
Economists mainly expect the US to recover in the second quarter as some of the factors that held back growth at the start of the year fade away. An increase in the omicron variation slows down the activity and Russia’s attack on Ukraine Worsening supply chain problems contributed to the highest inflation in 40 years.
By CNBC Quick update survey shows that the average expectation is 3.3% growth in the second quarter; The Atlanta Fed GDPNow The tracker also points to a rebound, but at a softer 1.8% rate.
One factor driving growth is resilient consumers fighting through inflation increased by more than 8.3% from a year ago in April.
Consumer spending as measured by personal consumption expenditure rose 3.1%, better than the first estimate of 2.7%. That has come as the labor market continues to be strong and wages are rising rapidly, albeit still below the pace of inflation.
Total first jobless claims for the week ended May 14 was 210,000, down from 218,000 previously, Ministry of Labor reports.
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