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MORE THAN MEETS THE EYE

GDP is selling the US economic recovery short

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Moving forward.
  • Nate DiCamillo
By Nate DiCamillo

Economics reporter based in New York.

Published Last updated

The US economy shrank 1.4% in the first quarter compared to the same period in 2021, but that number isn’t a complete picture of where the US economy is headed.

Private final domestic demand—which strips out inventories and net exports—was up 3.7% in the first quarter, showing that Americans were still ready to get out and spend during the first quarter. Other signs the recovery is on solid footing: Consumption moved up 2.7%, business fixed investment was up 9.2%, and residential investment was up 2.1%.

“Domestic demand was very strong in the first quarter—it actually rebounded from the fourth quarter,” said Kathy Bostjancic, chief US economist at Oxford Economics.

Strong imports are another sign of strong demand

Imports rose in the first quarter, meaning that Americans are demanding lots of goods. “Import growth has been so strong, we had two quarters in a row that was nearly 18%,” Bostjancic said.

Meanwhile, exports didn’t keep up with import growth. That suggests supply chain disruptions are making it hard for companies to export their products. Imports for raw materials, for example, have been slowed by both the war in Ukraine and covid shutdowns in China, Bostjancic said.

Fourth quarter GDP made first quarter GDP seem smaller

The first quarter inventory numbers also look worse because they compare to growth in the fourth quarter, which was boosted by a buildup in inventories just before the holiday season.

To get a better picture of the US economy, it makes more sense to average both the fourth and first quarter results, Bostjancic said. In fact, adding the two inventory builds between each quarter would make for the largest buildup since World War II, she noted.

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