Is a Recession Looming? US Q1 GDP Falls 1.6%

The US economy shrank at a 1.6% annual pace, according to the Federal Government. That's a far cry from Q1 2021, when the economy jumped 6.4%. And the second quarter of 2022 isn’t looking all that great, either. The downturn comes as The Federal Reserve is lifting interest rates in an effort to subdue the highest inflation rate in 40 years.

The contraction in gross domestic product was the first since the onset of the pandemic in early 2020. Previously the government put the decline at 1.5%.

But according to observers, the decline was somewhat misleading. They note that a record surge in the US trade deficit was largely responsible for the decline in first-quarter GDP.

Consumer spending and business investment, the two biggest pillars of the economy, both rose in the first quarter and indicated the US was still expanding at a modest pace.

Consumer spending wasn’t nearly as strong in the first quarter as it previously looked, though.

GDP in the second quarter is on track to grow less than 1%, according to the latest Wall Street estimates. Some forecasters put growth at as little as 0.1% but others see the economy expanding by 3%-plus.

Analysts say the trade deficit has fallen from a record high and won’t be as big a drag. Yet businesses appears to have slowed the buildup in inventories and tempered investment. Consumer spending might may have also softened again.