US economy recorded an unexpected contraction in the first quarter but big interest rate hikes are still on the list | Business Newsletter

The US economy went in the opposite direction in the first three months of the year, according to initial official data, which was initially expected to show a much softer growth pace.

The commerce department’s first estimate for gross domestic product (GDP) for January-March showed an annual rate decline of 1.4%.

Economists had predicted growth of 1.1% – down from the annual 6.9% seen in the last three months of 2021.

The world’s largest economy has been predicted to feel the effects of rising inflation, which has been seen even before Russia’s tanks plunge. Ukraine at the end of February.

However, the data showed that consumer and business spending remained up during the quarter despite price pressure largely due to rising oil prices.

Consumer spending rose 2.7% amid a 7.8% increase in prices in the quarter.

The department said the main factor behind the drop was slower stocking of goods in stores and warehouses – a consequence of COVID-related global supply disruptions – and a sharp drop in exports.

The figures raised concerns about a growing threat of a recession as trade between the US and China remains hampered by the fight against the pandemic that has caused loss of orders and delays in shipping, especially especially out of Shanghai.

This is because the effects of Russia’s actions, including sanctions levied on Moscow in retaliation for its invasion, also continue to add to inflationary pressures and threaten spending power.

Trade flows have been disrupted by high demand as the COVID crisis has eased in the US but China remains constrained.  Photo: AP
Trade flows have been disrupted by high demand as the COVID crisis has eased in the US but China remains constrained. Photo: AP

However, economic and financial analysts still believe that despite the economic downturn, the US Federal Reserve will continue to raise interest rates by 0.5% next week to tackle inflation. .

That’s because the US job market remains resilient in the face of difficulties – with an unemployment rate of just 3.6%.

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‘China shutdowns cause genuine supply chain problems’

Strong wage growth, a consequence of business retention policies to combat labor shortages, has been credited with keeping consumer spending steady despite rising bills.

Fed Chairman Jerome Powell has signaled that two more 0.5% rate hikes are possible before the end of the year, betting that inflation can be tamed to some extent without causing Depression.

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