3 takeaways from the US real GDP Q1 2022

The Final GDP release in the United States for the first quarter of 2022 was not on the list of the main events to watch yesterday for a couple of reasons.

First, the highlight of the day was a panel at the ECB Forum in Sintra, Portugal, where Jerome Powell, Christine Lagarde, and Andrew Bailey discussed the current challenges to economic growth. They are the heads of the Federal Reserve in the United States, the European Central Bank, and the Bank of England.

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Second, the Final GDP is the third estimate (and the final one) of the economic growth, following the Advanced and the Preliminary ones. In other words, most of the info in the report was already known.

But because it is the final print, this is what makes the report important. This is it – no more changes or revisions for the Q1 2022 economic growth in the United States.

Recession risks in the United States have increased

The economic contraction in Q1 2022 has reached -1.6% in the United States. The third estimate of the real GDP pushed the economic activity down even more, from -1.5% revealed by the second estimate.

As such, the risk of an economic recession increased. But how do we define an economic recession?

Recessions follow periods of expansion, and the technical recession is defined by two consecutive quarters of negative growth in the GDP. Based on further details pointed out by yesterday’s report, recession risks increased.

Consumer spending slows

One of the surprises in yesterday’s report was consumer spending. In the end, it only grew by 1.8% in the quarter, but it was revised sharply down from the second estimate – forecast 3.1% in the second estimate and revised to 1.8% in the third one.

The revision of consumer spending was visible on durable and non-durable goods, indicating that consumer resilience is not as elevated as initially thought.

Inventory accumulation does not offset the slowdown in consumer spending

When inventory rises and consumer spending declines, it tends to offset the slowdown in consumer spending. Inventory did rise, but not as previously thought.

All in all, the US economy contracted by -1.6% in the first quarter of the year, and the recession risks mount. If the incoming data in the second quarter does not improve, the Fed will be in the spotlight as it plans to raise rates in an economic slowdown and, why not, in a technical recession.