The US economy shrank 1.6% in the first quarter, adding to fears of a recession

With a quarter of negative economic growth on the books, the data adds to fears that a recession is imminent.

Real gross domestic product fell 1.6% year-on-year from January to March, according to the BEA’s third and final revisions for the quarter.

Earlier, the advance forecast published in April showed a contraction of 1.4%. Last month, that was adjusted to a decrease of 1.5%.

The GDP performance in the first quarter, which includes some unquantified effects of the pandemic and the wave of Omicron variants, according to the BEA, contrasted with the fourth quarter of 2021, when the economy grew by 6.9% over compared to the previous quarter.

However, the first quarter of 2022 marked the beginning of the Russian invasion of Ukraine, which sent economic shockwaves through the global supply chain, as well as food, financial and energy markets.

Domestically, inflation in the US has risen to levels not seen in decades amid ongoing supply chain challenges, rising raw material and labor costs and rising oil prices.

The BEA attributed the latest drop of 0.1 percentage point to slower-than-expected growth in consumer spending, although that was partly offset by gains in private inventory investment.

The shift in consumer spending estimates puts additional emphasis on the most recent personal spending price indices, one of the Federal Reserve’s favorite measures of inflation, said Shannon Seery, a Wells Fargo economist. The latest report will be released on Thursday.

Wells Fargo expects a mild recession to occur in the second quarter of 2023, although strong household finances and solid consumer and business balance sheets should keep such a downturn, if one occurs, fairly tame, Seery said.

While a recession is usually defined as two consecutive quarters of GDP decline, that’s not a hard and fast rule, especially for those making the official decision. The National Bureau of Economic Research, the arbiter of U.S. recessions, considers a range of indicators alongside GDP performance and defines a recession as a “significant drop in economic activity that is spread across the economy and lasts longer than a few months.” .

The preliminary estimate for GDP performance in the second quarter is scheduled for release on July 28.

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