US Economy Falls in Contraction in Q1

After the recession in 2020 due to coronavirus restrictions, the US economy had the strongest period of growth during 2021, but it seems like 2022 is starting on the wrong foot. Expectations for today’s GDP report were for a 1.1% expansion during Q1, but the report showed a -1.4% contraction.

That’s quite a miss, although with prices surging in Q1, consumer spending on durables declined by 4.1%. If we remove auto sales, the GDP contraction came at -1.4%. This puts the FED in a difficult position, since it will mean that it will be harder to increase interest rates, which would hamper the economy further. Nonetheless, the USD continues the bullish momentum against all major currencies, with EUR/USD trading at 1.05 while USD/JPY has increased above 131.

US Q1 Advance GDP Report

• Q1 advance GDP -1.4% vs +1.1% expected
• Q4 2021 GDP final was 6.9% annualized
• Consumer spending +2.7% vs +2.5% prior
• Consumer spending on durables -4.1% vs +2.5% in Q4
• GDP deflator +8.0% vs +7.3% expected
• Core PCE +5.2% vs +5.4% expected
• GDP final sales -0.6% vs +1.5% in Q4
• Nominal GDP vs up 14.3% annualized in Q4
• Business investment +9.2% vs +2.9% in Q4
• Home investment +2.1% vs +2.2% in Q4
• GDP ex motor vehicles -1.3%
• Full report

Details:

• Inventories cut 0.84 pp from growth
• Net trade cut 3.2 pp from growth

• Home investment cut 0.03 pp from GDP
• Personal consumption added 1.83 pp GDP
• Gross private domestic investment added 0.43 pp to GDP
• Government spending cut 0.48 pp from GDP

The US had the strongest annual growth in 2021 since 1984 but trade and inventories weighed in the first quarter. The 8.0% inflation number is certainly a problem.

USD/JPY Live Chart

ABOUT THE AUTHOR See More

Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.

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