The U.S. economy contracted in the first three months of the year, but strong consumer spending and continued business investment suggested that the recovery remained resilient.
Gross domestic product, adjusted for inflation, declined 0.4 percent in the first quarter, or 1.4 percent on an annualized basis, the Commerce Department said Thursday. That was down sharply from the 1.7 percent growth (6.9 percent annualized) in the final three months of 2021, and was the weakest quarter since the early days of the pandemic.
The decline was mostly a result of the two most volatile components of the quarterly reports: inventories and international trade. Lower government spending was also a drag on growth. Measures of underlying demand showed solid growth.
Most important, consumer spending, the engine of the U.S. economy, grew 0.7 percent in the first quarter despite the Omicron wave of the coronavirus, which restrained spending on restaurants, travel and similar services in January.
“Consumer spending is the aircraft carrier in the middle of the ocean — it just keeps plowing ahead,” said Jay Bryson, chief economist for Wells Fargo.
In the first quarter, slower growth in inventories shaved close to a percentage point off G.D.P. growth. Companies raced to build up inventories in late 2021 to make sure 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.
The ballooning trade deficit, meanwhile, took more than three percentage points away from G.D.P. growth in the first quarter. 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 G.D.P., have lagged in part because of weaker economic growth abroad.
A measure of underlying growth, which strips out the effects of inventories and trade, rose 0.6 percent in the first quarter, adjusted for inflation. That represented a modest acceleration from the end of last year.
“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,” said Diane Swonk, chief economist for the accounting firm Grant Thornton. “Domestic spending was remarkably resilient. It actually accelerated.”