U.S Economy Contracts By 1.4% In First Quarter Of 2022 Driven By Rising Trade Deficit, Inflation, Decreased Government Doles

The U.S. economy contracted 1.4% in the first quarter on an annualised basis to mark the first drop since the onset of the pandemic.

"Real GDP decreased 1.4 percent at an annual rate (0.4 percent at a quarterly rate1 ) in the first quarter of 2022, following an increase of 6.9 percent at an annual rate (1.7 percent at a quarterly rate) in the fourth quarter of 2021." the Bureau of Economic Analysis (BEA) said in an official release.

Ballooning trade deficit, inflationary pressure, resurgence of COVID-19 cases from the Omicron variant, decreases in government pandemic assistance payments and disruption in supply chain are seen as the likely reason for the contraction.

"The decline occurred amid a resurgence of COVID-19 cases from the Omicron variant and decreases in government pandemic assistance payments. Other economic factors including supply-chain challenges, low unemployment, and widespread inflation continued." BEA added.

Consumer spending and business investment, the two mainstays of the economy, remained robust.

The decrease in real GDP reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased.

The trade deficit by itself reduced GDP by a whopping 3.2 percentage points.