US Economy: Shrinking GDP Masks a Broader Recovery

Facts

• The US economy shrank at an annualized rate of 1.4% in the first 3 months of 2022 according to a new report the US Dept. of Commerce released Thurs.¹
• The figures mark the first quarterly decline in GDP since Apr. 2020 - the start of the pandemic - and are in stark contrast to last year's growth rate of 5.7%.¹
• Part of the decline could be explained by a surge in imports, which count against domestic economic production figures, as consumer spending rose and businesses sought to restock depleted inventories.²
• Meanwhile, consumer spending continued to be strong, increasing at an annualized rate of 2.7%, compared with 2.5% in the final quarter of 2021.²
• US exports rose to record levels in Mar. 2022, but those gains were far outpaced by spending on imports, allowing the trade deficit in goods to widen by nearly 18% to $125.3B.³

Sources: ¹Washington Post, ²Al Jazeera and ³New York Times.

Narratives

• Right narrative, as provided by Breitbart. Biden's economy is the definition of stagflation, marked by slow or even declining GDP growth and stubborn inflation. The US economy is extremely vulnerable to trade imbalances that are hurting consumers and manufacturers alike, and the Biden admin. and the Federal Reserve are to blame.
• Left narrative, as provided by CNN. Economists looking at the bigger picture see plenty of signs for optimism. Consumer spending - the primary engine of the US economy - is on the rise, and so are capital investments by businesses that will spur further production gains. A recession is unlikely with such strong tailwinds.
• Narrative C, as provided by FXStreet. For all the hand-wringing among economists, the real culprit here is the surging US dollar, which continues to gain strength against major foreign currencies like the Yen and the Euro. A strong dollar makes US exports more expensive and imports cheaper. The strength of the dollar should be top of mind for the Biden admin.