GDP report shows US economy has contracted, obscuring broader recovery
The White House dismissed a decline in first-quarter growth due to a quirk in inventories and an increase in imports, pointing out that Thursday’s gross domestic product report also indicated underlying strength in consumer spending.
GDP fell 0.4% in the first quarter after adjusting for inflation, or 1.4% on an annualized basis, the Commerce Department said Thursday. Businesses had been building up inventories in the fourth quarter and building them up more slowly at the start of the year, and imports far outpaced exports as Americans bought goods overseas, driving the decline.
“While last quarter’s growth estimate was impacted by technical factors, the United States faces the challenges of Covid-19 around the world, Putin’s unprovoked invasion of Ukraine and the global inflation from a position of strength,” President Biden said in a statement following the press release, referring to Russian President Vladimir V. Putin. Mr. Biden also noted that “consumer spending, business investment and residential investment have grown at high rates.”
Mr. Biden and the Democrats face a tough midterm election year as inflation rises at its fastest pace in four decades, chipping away at household budgets and eroding consumer confidence. At the same time, the Federal Reserve is raising interest rates to try to prevent rapid price increases from becoming permanent, which could begin to significantly cool the economy as voters head to the polls.
The administration attempted to attribute high inflation to Russia’s invasion of Ukraine. While the war pushed up the prices of gas and other commodities, inflation was high even before Russia attacked.
Republicans have taken advantage of rising prices to blast Mr. Biden’s economic policies. The decline in growth at the start of the year allowed them to intensify these criticisms.
“Accelerating inflation, a workers’ crisis and the growing risk of a significant recession are the hallmark economic failures of the Biden administration,” Rep. Kevin Brady, a Republican from Texas, said in a statement Thursday. Press.
Rep. Kevin McCarthy of California, the House Republican leader, also blamed Democrats for 40-year-old declining growth and high inflation levels.
“In 15 months, one-party Democratic rule has ruined America’s recovery and made you pay the price,” McCarthy said. wrote on Twitter.
The Biden administration’s 2021 economic stimulus package, which sent checks to households and provided other relief at a time when the labor market was already recovering, has been criticized by economists for helping to fuel demand for excessively high consumption. This likely increased inflationary pressures as the economy reopened, some research suggested.
Republicans often take the opportunity to assert that the explosion of inflation is the fault of the administration. But administration officials point out that their policies contributed to a rapid recovery, came at an uncertain time and built on a pandemic response launched under the Trump administration.
In a speech Thursday, Treasury Secretary Janet L. Yellen defended the scale of efforts to support the economy. She recalled dire economic projections from the early days of the pandemic and said spending was needed to avoid the worst-case scenario, although some economists warned that the final installation in 2021 was too much and too poorly targeted, even at the time of his passage.
“Throughout 2020 and into 2021, the trajectory of the pandemic, including its severity and the role of future virus strains, could not be predicted,” Ms Yellen said at an event at the Brookings Institution organized by the Hamilton Project and the Hutchins Center. “Given this uncertainty, stimulus packages were intended to protect against tail risk.”