The Federal Bureau of Economic Analysis released an update to its first-quarter gross domestic product (GDP) estimate on Thursday, May 26.
The data reveals that real GDP decreased by an annual rate of 1.5%, 0.1% greater than the 1.4% decrease initially reported. The downturn contrasts sharply with the robust fourth quarter of 2021, which showed a 6.9% increase in GDP.
Consequently, the Atlanta Federal Reserve revised its growth “nowcast” for the second quarter. The Atlanta Fed now sees 1.9% in real GDP growth, down from an estimated 2.4% before the BEA updated its figures.
The revised first quarter GDP data reflected declines in private inventory investment, lower government spending across the board, and lower exports. Government spending decreased at the federal, state, and local levels due to reduced COVID-19 pandemic assistance.
Additionally, supply chain disruptions, labor shortages, and inflation all contributed to lower private inventory investment.
The BEA also revised its measurement of inflation, clocking an 8% increase in the first quarter, marking the highest rate increase since January 1982.
Inflation is taking a toll on American families, particularly the nation’s low-income earners. While wages, salaries, and social security payments have gone up, personable disposable income has fallen and individual income is not keeping up with the rate of inflation.
Soaring inflation, paired with the disheartening first-quarter revision, is causing concern over the possibility of the country slipping into a recession.
Recessions are characterized by negative GDP, rising unemployment, and a decline in retail sales, manufacturing, and income.
The present downturn does not currently fit the classic definition of recession. While GDP has slipped, other economic indicators remain strong. Consumer spending and wages have increased, and the unemployment rate is still hovering at historic lows.
Analysts have mixed assessments of the economy and disagree over whether the country is tipping toward recession. A survey by the National Association for Business Economics indicates a 25% chance the U.S. economy will fall into a recession within a year.