US economic growth fell 1.4% annually in the first quarter of 2022, as the omicron variant of covid-19 and reduced government spending hit consumers and businesses, according to government data. released on Thursday.
The result was much worse than expected by analysts, who had estimated a slight increase, and came after the economy grew 6.9% in the last quarter of 2021.
The United States is grappling with record inflation as it recovers from the COVID-19 pandemic, even as fuel and other commodity prices rise due to the Russian invasion of Ukraine and global supply problems, which have raised fears that the world’s largest economy could slide into recession.
Ian Shepherdson of Pantheon Macroeconomics said the shortfall last quarter was partly due to companies importing more to rebuild inventories, and growth could pick up in the second quarter of 2022.
"The economy is not slipping into recession. Net trade has been hit by a surge in imports, especially of consumer goods, as wholesalers and retailers have tried to rebuild their inventories."Shepherdson wrote in an analysis.
The Commerce Department explained in a statement that "the drop in GDP reflects the reduction in private investment, exports, (…) public spending by the federal state and local governments, while imports (…) increased".
Durable goods drove the rise in imports, while the report said the private investment shortfall was largely due to wholesale trade goods, particularly motor vehicles, which have been in short supply due to a global shortage of semiconductors.
The drop in government spending was due both to declining defense spending and the expiration of government programs such as the child tax credit, which provided relief to families.