Great Lakes Wire

A spokesperson from the Michigan Chamber of Commerce recently offered their opinion on recently released numbers that show a decline in the nation's real gross domestic product (GDP) for the first quarter of 2022.

According to last week's release from the Bureau of Economic Analysis (BEA), the U.S. economy is in negative growth territory, as real GDP declined at an annual rate of 1.4% in the first quarter of 2022. In the fourth quarter of 2021, real GDP grew 6.9%.

The first quarter of 2022 was the weakest since spring 2020, when the COVID-19 pandemic and related shutdowns drove the U.S. economy into a short-term recession, according to the Wall Street Journal (WSJ).

The Detroit Regional Chamber President and CEO Sandy K. Baruah said that these numbers are misleading and that certain crucial indicators of the economy are more positive. 

"Critical indicators of economic health continue to be positive, including consumer spending up 2.7% and business spending on equipment and R&D up 9.2% in Q1," Baruah told Great Lakes Wire. "The primary driver of the negative overall growth rate was the widening trade deficit with imports up about 18% (indicating strong American demand for goods) and reduced exports, down about 6% as a result of supply chain issues." 

Baruah said it's important to study the underlying data to get a fuller picture, although the overall GDP figure is important.

"The American economy has demonstrated surprising resilience in the face of significant global supply chain disruptions and inflation. While it is hard to predict the future, today’s unemployment rate that matches pre-pandemic record lows, as well as consumer and business spending, paint a positive short- and medium-term outlook," he said.

The first quarter drop in GDP is attributed to a variety of factors, the WSJ reports. From a widening trade deficit, the U.S. has imported far more than it has exported. Additionally, slower pace of inventory investment by businesses in the first quarter—compared with a rapid buildup of inventories during the fourth quarter of 2021—also pushed growth lower. Lastly, fading government stimulus spending related to the pandemic weighed on GDP.

The WSJ notes that high inflation is cutting into households’ purchasing power. This month, the U.S. Bureau of Labor Statistics announced consumer prices rose 8.5% in March from a year earlier, a four-decade high. Although average hourly earnings were up 5.6% over the same period, elevated inflation is wiping away pay gains for many workers.

Forbes reports that in 1974, economist Julius Shiskin defined a recession as two consecutive quarters of declining GDP. Shiskin noted a healthy economy expands over time, so two quarters in a row of contracting output suggests there are serious underlying problems. This definition of a recession became a common standard over the years. Looking at today's first-quarter GDP release and in accordance with this rule of thumb, the U.S. economy is now halfway toward a recession.

According to an April 12 report from the World Economic Forum, both retail and professional investors hold a gloomy outlook on the country's economic future. A Bloomberg Markets Live survey, conducted between March 29 and April 1, revealed 48% of investors expect the U.S. to fall into recession next year. Another 21% expect the downturn to happen in 2024, while 15% of the 525 respondents expect the recession to come as early as this year.