The US economy contracted at a 1.4pc annual rate in the first quarter, the first decline since the Covid-19 pandemic caused a short, deep recession in the second quarter of 2020.
The first quarter contraction reflected decreases in private inventory investment — or inventories companies keep to support production and distribution — particularly in the automotive sector, as well as reduced net exports, and lower federal, state and local government spending, the Bureau of Economic Analysis (BEA) said. Those factors together subtracted 4.5 percentage points from growth.
But the first-quarter contraction is not necessarily a sign of a fundamental change in direction for the economy, as gross domestic product growth was 6.9pc just a quarter earlier. Rather it largely reflects a drop in net exports as imports surged on inventory rebuilding amid snagged supply chains. Exports of goods fell by 9.6pc while imports of goods surged by 21pc.
"Net trade has been hammered by a surge in imports, especially of consumer goods, as wholesalers and retailers have sought to rebuild inventory," said Ian Shepherdson, chief economist at Pantheon Macroeconomics. That level of inventory-building imports cannot last much longer, he said.
"This is noise; not signal," he said. "The economy is not falling into recession."
Consumer spending, the largest part of the economy, grew at a healthy 2.7pc in the first quarter compared with 2.5pc in the fourth quarter.
Still, government support, including "forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased as provisions of several federal programs expired or tapered off," the BEA said. Federal government expenditures fell by 5.9pc.
Also crimping growth in the quarter, "an increase in Covid-19 cases related to the Omicron variant resulted in continued restrictions and disruptions in the operations of establishments in some parts of the country," the BEA said.
