Q1 GDP ‘Failed to Meet Even Low Expectations’; NAFCU Economist Said There Is Some ‘Good News’

WASHINGTON–The U.S. economy contracted in the first three months of the year, but strong consumer spending and continued business investment suggested that the recovery remained resilient, according to some analysts.

Curt Long, NAFCU

According to the Commerce Department, gross domestic product, adjusted for inflation, declined 0.4% in the first quarter, or 1.4% on an annualized basis. Those numbers are down considerably from the 1.7% growth (6.9% annualized) reported in Q4 2021, and reflect the weakest quarter since the early days of the pandemic.

"GDP growth in the first quarter failed to meet even the low expectations of forecasters. The main culprits were inventory build and trade. The good news is that domestic demand is still solid, inventory growth should right itself, and slower growth may ease some of the pressure on prices,” said NAFCU Chief Economist and VP-Research Curt Long. “But given geopolitical realities and the soaring value of the dollar, trade will remain a drag on the economy”

Two Volatile Components

The Commerce Department data indicated the decline was mostly a result of the two most volatile components of the quarterly reports: inventories and international trade. Lower government spending was also a drag on growth. Measures of underlying demand showed solid growth.

Consumer spending, the engine of the U.S. economy, grew 0.7% in the Q1, despite the Omicron wave of the coronavirus, which restrained spending on restaurants, travel and similar services in January.

“Today’s GDP numbers don’t reflect what’s happening on Wall Street, they reflect what’s happening on Main Street. This incredible economic downturn continues to hurt small businesses and families, and it’s critical that Americans have access to financial services and products to get them through the uncertainties of this financial environment,” said NAFCU President and CEO Dan Berger.

3 Percentage Point Drop

The growing U.S. trade deficit was blamed by economists for taking more than three percentage points away from GDP growth in the first quarter. But one measure of underlying growth, which strips out the effects of inventories and trade, rose 0.6% in the first quarter, adjusted for inflation. That represented a modest acceleration from the end of last year, analysts said.

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