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US Economy shrinks by 1.4% in first quarter of 2022, making it the worst quarter in 2 years

According to the data from the Bureau of Economic Analysis revealed on Thursday, America’s economy suddenly decreased in the first quarter of 2022.

Harvard University professor Kenneth Rogoff, a former chief economist at the International Monetary Fund, tells ‘Mornings with Maria’ that GDP falling at a 1.4% annualized rate is ‘even below the worst’ he believed it might have been.

The U.S. economy reduced markedly in the first three months of the year, as snarled supply chains, record-high inflation and labour Shortages reflected on growth and hampered the pandemic recovery.

Recession

The Commerce Department said in its first reading of the data on Thursday that Gross domestic product, the widest measure of goods and services produced across the economy, shrank by 1.4% on an annualized basis in the three months from January to March.

It was a marked slowdown from the 6.9% growth pace recorded in the final quarter of last year, and the worst performance since the pandemic recession in the second quarter of 2020. Economists had predicted an annualized growth rate of 1.1%, according to Refinitiv.

While one quarter does not yet make a tendency, it is a warning sign for how the recovery is going: Two straight quarters of decreasing growth meet a commonly used meaning of a recession.

What is GDP?

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific period by countries. It is used as a measure of economic growth.

Chris Zaccarell’s Statement 

“Today’s shock drop in GDP is a wake-up call that the economy isn’t as strong as we all thought,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “It’s possible that GDP gets revised higher next month, as this is just the first release and there will be two revisions, but it is a warning sign.”

What did the President of the United States say about the economic recession?

Despite the lower numbers, President Joe Biden categorized the US economy as “resilient in the face of historic challenges”, in a statement released Thursday morning.

“While last quarter’s growth estimate was affected by technical factors, the United States confronts the challenges of Covid-19 around the world, Putin’s unprovoked invasion of Ukraine, and global inflation from a position of strength,” the statement said.

Biden

Speaking to reporters, Biden praised strong consumer spending and low unemployment numbers and asserted that the compression was but a blip after a period of the strongest growth since 1984.

“What you’re seeing is enormous growth in the country that was affected by everything from COVID, and the COVID blockages that occurred along the way,” Biden said.

“No one is predicting a recession now, they are, some are predicting a recession in 2023. I’m concerned about it,” he added.

“But I know one thing, if our Republican friends are really interested in doing something about dealing with economic growth, they should help us continue to lower the deficit,” Biden continued, calling for ‘a tax code that is actually one that works.’

Biden

In an earlier statement responding to the focusing new data, Biden contended that the US economy ‘continues to be resilient in the face of historic challenges.’

“While last quarter’s growth estimate was affected by technical factors, the United States confronts the challenges of COVID-19 around the world, Putin’s unprovoked invasion of Ukraine, and global inflation from a position of strength,” the president said.

Biden said in his statement that his prescription for the economy included ‘cutting costs for working families, making more in America, and creating good-paying jobs you can raise a middle-class family on.’

He called on Congress to pass a draft of Democratic policy priorities that have been stalled in negotiations.

President held technical factors responsible for the economy’s shrinking

President Joe Biden has condemned ‘technical factors’ after the U.S. economy shrank last quarter for the first time since the pandemic slump struck two years ago.

Biden did not magnify what ‘technical factors’ he blamed for decreasing growth, but the Commerce Department said that a growing trade deficit and lower business spending on merchandise were key factors.

What is a recession?

A recession is characterised by an economic slowdown, meaning a decreased rate of expenditure, production, investment, price level and sales in an economy. An economic recession usually succeeds a period of inflation. The most troubling aspect of this is that the higher the inflation (or more broadly, expansion), the more hard-hitting the recession will be. Once the economy reaches its peak stage known as an economic boom, which is characterised by the zenith amount of sales, production, investment, price level and expenditure, it usually steps into the recession stage. A recession is typically the next stage after expansion in the natural business cycles that an economy faces.

Business Cycles

In terms of economic policy, there’s nothing policy-makers can do to eliminate the business cycle altogether. However, measures can be taken to flatten the slope out so as to eliminate excessive economic instability on account of the business cycle.

What caused the recession in the U.S economy?

Much of the first-quarter decrease in the United States was due to a decrease in inventory investment, which had been booming in the final months of 2021.

That means the GDP decline should be taken with a grain of salt, warned Ryan Sweet, senior director of economic research at Moody’s Analytics, on Wednesday before the data was published.

Exports and government spending also fell, while imports rose. Consumer spending, which is crucial to the economy, increases as prices keep rising. Americans spent more on services, led by health care. That offset a small decline in goods spending, which decreased due to lower spending on gas.

The US gas price is over $4 per gallon, so these oil CEOs took home more than $20 million

Gas prices increased through the roof in response to Russia’s war in Ukraine, which jolted energy markets around the world.

Also Read| The US gas price is over $4 per gallon, so these oil CEOs took home more than $20 million.

The price index tagging personal consumption expenditure rose 7% in the first three months of the year, or 5.2% when stripping out energy and food prices.

“Unfortunately, this GDP rate did not meet expectations, but unsurprising as the US economy remains very inconsistent with geopolitical turbulence from the war in Ukraine, a global supply chain crisis, increasing inflation and the ongoing Covid-19 pandemic,” said Steve Rick, chief economist at CUNA Mutual Group, in emailed comments. “All of these factors have shrunk GDP growth rates around the globe.”

The second assessment of first-quarter GDP growth will be published at the end of May.

What does this mean for the Federal Reserve Board?

The central bank, which is commencing to overturn course after a period of ultra-loose policies during the pandemic, is anticipated to put up interest rates next week. It would be the second rate hike of the year. The vast bulk of market participants expects a half-percentage-point increase, up from the quarter-point hike announced in March. Earlier this month, Fed Chairman Jerome Powell said a bigger rate hike was on the table for the May meeting.

Federal Reserve Board

“The Fed will continue to press on the policy brakes with increased determination over the coming months as inflation shows pesky persistence,” said Greg Daco, chief economist at EY-Parthenon.

Fed Chairman Jerome Powell has lifted back against the concern that further tightening by the central bank will cause a slump and has maintained the positiveness that the Fed can strike a fresh balance between taming inflation without breaking down the economy.

Still, he recognized the difficulty of the task ahead and said it is “essential” for central bankers to rebuild price strength.

“Our goal is to use our tools to get demand and supply back in sync, so inflation moves back into place, without a slowdown that amounts to a recession,” Powell said during a recent panel discussion with the IMF and the World Bank. “I don’t think you’ll hear anyone at the Fed say that’s straightforward. It’s going to be challenging.”

What is The Federal Reserve Board?

The Federal Reserve Board is the group of officials who control the U.S. government’s central banking system (the Federal Reserve System).

 

 

 

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