- US gross domestic product shrank at an annualized rate of 1.4% in the first quarter of 2022.
- Economists expected 1.1% growth. The negative print shows a major slowdown from the fourth quarter's 6.9% pace.
- The first months of 2022 saw the Omicron wage crest and fade while inflation accelerated to 41-year highs.
The US economy contracted for the first time since the early days of the pandemic as historic inflation crashed into the otherwise strong recovery.
The country's gross domestic product shrank at an annualized rate of 1.4% through the first quarter of the year, the Commerce Department said Thursday morning. Economists surveyed by Bloomberg held a median estimate of 1.1% growth over the period. The print shows the recovery slowing massively from the 6.9% rate seen through the fourth quarter.
The report — the first to come after the best growth year since 1984 — underscores the bumpier path ahead for the country's rebound. On one hand, the first months of 2022 saw the Omicron wave crest and then quickly ease. Daily virus infections hit their lowest levels since the summer in March, and while case counts have trended slightly upward, they remain well below the highs seen during the second half of last year.
But while the coronavirus's threat has largely faded, inflation took its place as the economy's biggest downside risk. Price growth accelerated to a year-over-year pace of 8.5% in March, marking the fastest inflation since 1981 and a sizeable pickup from the rate seen at the end of 2021. Russia's invasion of Ukraine only exacerbated the issue in recent weeks, with supply-chain issues and sanctions driving energy and food costs sharply higher.
The bleak GDP reading isn't set in stone. The figure will be revised multiple times in the coming months as more data comes in.
The bulk of the decline was also powered by somewhat temporary factors. The fourth quarter's booming growth was led by a massive inventory buildup as companies rushed to match supply with demand. Since most of that stockpiling happened in the last months of 2021, businesses dramatically slowed down their inventory investment in the first quarter. That cutback dragged significantly on GDP.
Trade also pulled headline growth to lower levels, but that too masks the true nature of the recovery. Economic activity rebounded faster in the US than in most other economies, and Americans continued to spend at a record pace through February. That left imports, which are subtracted from GDP, at elevated levels. Slow recoveries abroad also kept demand for US exports fairly subdued, further dampening the growth measure.
"A soft headline Q1 GDP number has been in the cards for some time so this does not change our view on the outlook," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said. "This is noise, not signal. The economy is not falling into recession."
Plenty of bright spots remain. Consumer spending grew at an annualized pace of 2.7% through the first quarter, accelerating from the prior quarter's pace. The measure was likely lifted by the drop in coronavirus infections and the reversal of some economic restrictions. It also suggests Americans are still pumping fuel into the economy despite soaring prices.
Still, the report signals the booming expansion seen through 2021 won't repeat itself. Growth was expected to ease as stimulus effects waned and the country got closer to full health, but the data reveals the slowdown was much more severe than anticipated.