Spending Increases as Economy Shrinks, Concerning Economists

Despite the shrinking U.S. economy indicated by a drop in the gross domestic product (GDP), consumers and businesses alike continue to spend – but economists are concerned that this could indicate a worrying trend.

The Department of Commerce estimates that the economy contracted at an annual pace of 1.5% from January to March, which is down from its original estimate of 1.4% made in May 2022. The GDP hasn’t dropped since Q2 2020 – after which the economy made a hearty recovery, bouncing back 6.9% in Q4 2021. Regardless, consumer spending has not been impacted.

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While inflation and supply chain issues are said to be stalling the economy, it’s hard to determine how this trend will progress. In fact, overall, the economy has been healthy and strong over the past year. Through Q1 2022, the economy grew at a 3.1% annual pace, and productivity rose 6.8% year-over-year. The strong job market is also in the economy’s favor, as the Fort Worth Business Press reports that there are around two job openings for every unemployed American. Additionally, a survey of economists from the Federal Reserve Bank of Philadelphia says that the GDP could grow as much as 2.5% in 2022.

“The report isn’t as worrisome as it looks,” Lydia Boussour, Senior U.S. Economist at Oxford Economics, told AP News. “The details point to an economy with solid underlying strength that demonstrated resilience, lingering supply constraints, and high inflation.”

The main hinderance to economic growth, these experts say, is the Federal Reserve’s aggressive hiking of interest rates. While these rates should fight inflation, economists from the National Association for Business Economics argue, they could also cause problems – over half of those polled are concerned that there could be a recession within the year.