US economy contracts in first quarter; outlook fuzzy – Times of India


WASHINGTON: The US economic system contracted barely greater than beforehand estimated within the first quarter amid a file commerce deficit and provide chain disruptions, authorities knowledge confirmed on Wednesday.
The commerce division’s third estimate of gross home product additionally confirmed some underlying softness within the economic system, with client spending revised decrease and inventories greater than reported final month. This doesn’t bode effectively for home demand and the financial outlook amid recession jitters because the Federal Reserve aggressively tightens financial coverage to tame inflation.
“The most important impact from this report is that it leaves inventories in a extra overbuilt place than beforehand thought, placing second-quarter GDP into unfavourable territory pending what tomorrow’s knowledge reveal about Could consumption and client inflation and April revisions to the identical,” mentioned Chris Low, chief economist at FHN Monetary in New York.
Gross home product fell at a 1.6% annualized charge final quarter, revised down from the 1.5% tempo of decline reported final month. Economists polled by Reuters had forecast the tempo of contraction can be unrevised at a 1.5% charge.
The economic system was initially estimated to have contracted at a 1.4% charge. It grew at a strong 6.9% tempo within the fourth quarter. GDP was 2.7% above its stage within the fourth quarter of 2019.
Client spending, which accounts for greater than two-thirds of the economic system, grew at a 1.8% charge as a substitute of the three.1% tempo reported final month. The downgrade mirrored downward revisions to monetary providers and insurance coverage in addition to well being care.
Spending on long-lasting items like motor automobiles and leisure items was revised decrease.
Companies collected inventories at a $188.5 billion charge, slightly than the $149.6 billon charge reported final month.
Because of this, development in closing gross sales to non-public home purchasers, which excludes commerce, inventories and authorities spending, was revised right down to a 3.0% charge final quarter. This measure of home demand was beforehand reported to have risen at a 3.9% charge.
The economic system seems to have rebounded from the first-quarter hunch, with client spending accelerating in April. Enterprise spending on tools remained strong by Could, whereas the products commerce deficit narrowed considerably as exports hit a file excessive. However the bounce is shedding momentum due to the Fed’s aggressive posture.
The US central financial institution this month raised its coverage charge by three-quarters of a proportion level, its largest hike since 1994. The Fed has elevated its benchmark in a single day rate of interest by 150 foundation factors since March.
Retail gross sales fell in Could, whereas housing begins and constructing permits declined. Client confidence hit a 16-month low in June. Could’s client spending report on Thursday may shed extra mild on second-quarter development prospects, which vary from as little as a 0.3% charge to as excessive as a 2.9% tempo.
“This can be very unlikely the economic system is in recession now, nevertheless, regardless of the decline in first-quarter GDP and obvious weak spot in output development within the present quarter,” mentioned Scott Hoyt, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Job development stays robust, funding is rising, each households and enterprise have robust steadiness sheets.”

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