The U.S. economy shrank in the first three months of the year, and faces threats from high inflation and rising interest rates, yet economists foresee a return to growth for the rest of 2022 based on the strength of the job market and consumer spending.
The 1.4% quarterly decline in gross domestic product — the first contraction since the pandemic hit in 2020 — is not likely a prelude to recession, economists say. That may bring little comfort to President Joe Biden and Democrats, who face mid-term elections this year in which rising prices for food, energy and other essentials will be a major theme of Republican opposition.
Two trends were key drivers of the U.S. economy’s decline last quarter, according to Thursday’s report from the Commerce Department:
— Imports soared nearly 20% as Americans spent heavily on foreign-made goods, while exports fell almost 6% as growth slowed overseas — a widening of the trade deficit that subtracted 3.2 percentage points from GDP.
— Businesses had built inventories aggressively ahead of last year’s holiday shopping season, when they feared pandemic-related supply shortages, so they restocked more slowly at the start of 2022, denting GDP by 0.8 percentage points.