US Economy Bumps in Q1 as Recession Fears Grow
The United States’ (U.S) gross domestic product (GDP) growth unexpectedly contracted in the first quarter, according to government data released Thursday. The decline seen in the first three months is coming amidst the global energy crisis and rising dollar strength.
However, the Russia-Ukraine war remains a downside for the global economy, fabricating new risks to growth momentum.
Real GDP in the quarter fell at an annual rate of 1.4%, the first decline since the second quarter of 2020, according to the Bureau of Economic Analysis advance estimate. The consensus on Econoday was for a 1.1% gain. In the fourth quarter, real GDP grew 6.9%.
“The details are not quite as bad as what is implied by the negative headline, but there is no mistaking that this was a soft quarter…global supply chain disruptions continue to drag down growth, and peak (or near-peak) inflation muddies the water as well,” Jefferies Chief Economist Aneta Markowska said in a note.
The bureau said private inventory investment, exports, federal government spending, and state and local government spending all fell in the quarter, while imports grew. These were offset by gains in personal consumption expenditures, as well as nonresidential and residential fixed investments.
Government assistance payments also fell during the quarter as provisions of several federal programs expired or tapered off.
Declines in wholesale and retail trade led to the fall in private inventory investment, while the drop in federal government spending mainly reflected slowness in defense spending on intermediate goods and services. The rise in imports was led by increases in durable goods, according to the agency.
The price index for gross domestic purchases rose 7.8%, while the PCE price index advanced 7%. Current dollar GDP in the quarter rose 6.5% at an annual rate to $24.38 trillion. READ: Gold Ends Higher as Dollar, Bond Yields Rise
Pantheon Macroeconomics Chief Economist Ian Shepherdson wrote in a note that the Federal Reserve is expected to increase its benchmark lending rates by 50 basis points at its meeting next week as it “won’t be swayed” by the GDP report.
“Our expectation of a hefty rebound in growth in the second quarter means that the growth story alone won’t ease the upward pressure on rates,” Shepherdson added. Several analysts also said the risks of recession in 2023 appear to be increasing.
The agency will release its second GDP estimate for the first quarter on May 26.
US 7-Year Auction High Yield Climbs
The US Treasury’s 7-year auction hit a high yield of 2.908% on Thursday, up from the 2.499% high in the previous auction. The bid to cover ratio for the auction was 2.41, slightly below the 2.44 ratio in the previous auction. Dealers represented 58.92% of the bids, with direct bidders at 9.98% and indirect bidders at 31.1%.
For takedown, dealers took 15.22%, with direct bidders at 19.82% and indirect bidders at 64.95%. #US Economy Bumps in Q1 as Recession Fears Grow