US economy shrinks in first quarter, Joe Biden blames ‘technical factors’
The U.S. economy contracted in the first quarter amid record inflation, a sharp reversal that President Biden blamed on “technical factors” as he tried to quell fears of a recession during of the year of the midterm elections.
Gross domestic product contracted at an annual rate of -1.4%, after growing 6.9% in the fourth quarter, the Commerce Department reported. Consumer spending was weaker than expected and exports fell.
This was the first downturn in the economy since the pandemic began in the spring of 2020. A recession is generally defined as two consecutive quarters of declining GDP.
Many economists are warning that a recession is looming, especially as the Federal Reserve continues to raise interest rates to reduce high inflation. Yet few experts predict that a recession will hit before the fall.
Mr Biden, who got it wrong last summer when he insisted high inflation would be “temporary”, said on Thursday he did not foresee a recession.
“I’m not concerned about a recession,” Biden told reporters at the White House. “No one is predicting a recession now. Some are predicting there could be a recession in 2023. I mean, you’re still worried about recession, but GDP, you know, fell to 1.4%.”
SEE ALSO: Shrinking economy poses another major headache for Democrats ahead of midterm elections
Gross domestic product did not fall “to” 1.4%, which would still be positive growth. The economy contracted in the January to March period at an annual rate of -1.4%.
Mr Biden also said the performance of the economy “was affected by technical factors”, which his aides later explained. The president’s advisers said atypical measures of inventory and export growth skewed first-quarter performance and the underlying economy is still strong.
White House officials said first-quarter inventory growth was actually the fifth-strongest on record, but was well below last year’s record fourth-quarter inventory growth. Therefore, they said, the large change contributed -0.8% to GDP in the first quarter.
White House economic adviser Jared Bernstein said on Twitter that the United States “isn’t nearly out of the woods when it comes to supply chain grunts and their impacts on prices, with the Covid lockdown in china largely. But as with so much else in today’s economy, once you’re under the hood, every story is much more nuanced than it first appears.
White House press secretary Jen Psaki said the drop in exports was “largely because our economy is doing better than many economies around the world.”
“While we were buying a lot of goods from other countries, there wasn’t the same capacity to buy our goods,” she said.
SEE ALSO: The US economy shrank 1.4% in the first quarter due to inflation and shortages
Republicans in Congress said the slowdown, coupled with inflation that hit 8.5% in March, predicted more trouble ahead. They said the Democrats’ $1.9 trillion COVID relief bill in 2021 contributed to higher prices and hurt economic growth.
Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee responsible for drafting taxes, called the GDP report “very disturbing.”
“Under President Biden’s leadership, our economy is actually shrinking,” Brady said. “The president missed four of the five quarterly economic projections. Americans should therefore brace themselves for slower job growth and rising prices ahead.
Rep. John Joyce, Republican of Pennsylvania, said: “The numbers don’t lie, President Biden’s spending spree is crippling the American economy.”
Stocks rebounded on Thursday despite the GDP report as investors focused on strong earnings from tech companies. The Dow Jones Industrial Average rose 1.8%, while the tech-heavy Nasdaq jumped 3%.
The shrinking U.S. economy adds to the political woes facing Democrats ahead of November’s midterm elections, when the president’s party typically loses seats in Congress. Political analysts have said falling economic activity and high prices could exacerbate the backlash against Mr Biden and his party.
“People are always going to look for someone to blame for these kinds of economic problems,” said J. Miles Coleman, an election analyst at the Center for Politics at the University of Virginia. “It’s probably the Democrats, who are in power right now.”
The president pointed to strong “consumer spending and business investment and residential investment”, and the lowest unemployment rate since 1970.
“The American economy – fueled by working families – continues to resist in the face of historic challenges,” he said. “While the last quarter’s growth estimate was affected by technical factors, the United States faces the challenges of COVID-19 around the world, Putin’s unprovoked invasion of Ukraine and inflation world in a position of strength.”
Mr Biden slammed congressional Republicans on Thursday for a proposal he said would end up “raising taxes for middle-class families, half of them small business owners.” He urged Congress to send him legislation to increase production of semiconductor chips “to strengthen our supply chains and do more in America.”
“And Congress needs to pass legislation to cut costs and cut the deficit, cut families’ prescription drug and utility bills, and restore fairness to our tax code – without raising taxes on anyone earning less than $400,000 a year,” the president said in a statement. . “This is how we grow our economy and strengthen the middle class.
Mr. Biden also met with small business owners on Thursday to highlight the record growth of family businesses last year. He said minority-owned businesses have been particularly boosted to grow with help from his administration.
“We have every indication that this trend will continue,” Biden said.
But small businesses are struggling with inflation, according to a survey this week by the National Federation of Independent Businesses. It found that 62% of small businesses said inflation had a substantial impact on their operations, and 84% reported lower business revenue.
The survey found that 86% of small business owners raise the prices of their goods and services due to inflation.