A U.S. Department of Commerce report indicates that gross domestic product (GDP), adjusted for inflation, declined by 0.4 percent in the first quarter of 2022, or 1.4 percent on an annualized basis, the New York Times reported. That was a significant decline from the 1.7 percent growth (6.9 percent annualized) in the final three months of 2021, and it was the weakest quarter since the early days of the pandemic. On the other hand, measures of underlying demand showed solid growth. 

The Washington Post reported that inflation has been a major pressure point. Prices have risen by 8.5 percent in the past year. Last month, the Federal Reserve began to raise interest rates, with the goal of slowing the economy enough to slow down prices.  Democrats are also considering policies that could address high gas prices. 

The Times attributed the decline mostly to inventories and international trade, but it noted that lower government spending was also a drag on growth. It reported that slower growth in inventories removed close to a percentage point off GDP. growth. Companies hurried to build up inventories in late 2021 to make sure that supply-chain disruptions didn’t leave them with bare shelves during the holiday season. That meant they didn’t have to do as much restocking as usual in the new year. 

In addition, a ballooning trade deficit reduced GDP by three percentage points. Imports, which are subtracted from gross domestic product because they are produced abroad, have soared in recent months as U.S. consumers have kept spending. But exports, which add to GDP, have lagged in part because of weaker economic growth abroad. 

On the bright side, consumer spending grew by 0.7 percent in the first quarter, despite the Omicron wave of COVID-19, which restrained spending on restaurants, travel and similar services in January. 

The times quoted Diane Swonk, chief economist for the accounting firm Grant Thornton, who said, “The moral of the story is that the Omicron wave, the war in Ukraine and new lockdowns in China were more costly for growth abroad than they were at home. Domestic spending was remarkably resilient. It actually accelerated.”