In the United States, GDP fell 1.4% in the first quarter

In the United States, GDP fell 1.4% in the first quarter


Joe Biden at the White House, April 28, 2022.

For the first time since the Covid-19 crisis, the US economy shrank in the first quarter of 2022. Gross Domestic Product (GDP) fell 1.4% year-on-year compared to the last quarter of 2021. This bad percentage was not expected and marks a serious reversal of the situation compared to the 6.9% growth at the end of 2021.

The explanation of the data, however, allows us to hope that the country will not technically enter a recession, with a second quarter of declining activity: despite inflation not observed since 1980, Americans continued to consume (1.8 points contribution to growth (2.7% increase), mainly in services and business investment (1.3 point contribution, 7.3% increase): the two traditional growth levers would therefore be stable. “The American economy – fueled by working-class families – continues to hold its own in the face of historic challenges”immediately commented President Joe Biden.

The poor percentage published on Thursday 28 April by the statistical service can therefore be explained by three other factors: corporate inventory (0.8% negative contribution to growth), reduction of public spending (-0.5%), while the various stimulus plans came to an end, and, most importantly, the growing US trade deficit (3.2 negative contribution points). Analytically, the Americans continued to import en masse (increase of 17.7%), especially foreign cars, while domestic production is hampered by the lack of microprocessors, while companies have resorted to foreign oil. Exports, which fell 5.9%, were hampered by the crisis in Ukraine and the Omicron variant of SARS-CoV-2, which affected foreign economies more than the United States.

Harvard economics professor and former Barack Obama adviser Jason Ferman is trying to depoliticize the interpretation of this number on Twitter. “None of the weaknesses of this figure have anything to do with changes in monetary policy. [qui affecteraient l’investissement] or back [du stimulus] budgetary [qui affecterait la consommation]. “It’s an economy in high demand, but supply can not keep up.”summarizes Mr Furman.

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How will the Federal Reserve react?

The challenge is to know how the Federal Reserve will react when inflation soared to 8.5% in March. After raising its key interest rates by a quarter of a unit in March – now in the range of 0.5% and 0.75% – the Jerome Powell Foundation is set to meet on May 3 and 4 to decide on a new rate hike, at at least half a point, or even three quarters of a point. By the end of the year, the Fed could raise interest rates to 2.75% in line with market expectations.

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