U.S. GDP dropped at a 1.4% pace to begin the year
Key takeaways:
- Gross domestic product in the U.S. fell at a 1.4% pace in the first quarter, below critical anticipations of a 1% increase.
- Reductions in fixed investment, defense spending, and the record trade imbalance weighed on growth.
- Customer expenses grew 2.7%, but that came amid a 7.8% growth in costs.
- “This is noise, not signal. The economy is not dipping into recession,” noted Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Gross domestic product suddenly dropped at a 1.4% annualized rate in the first quarter, marking an abrupt reversal for an economy coming off its most nuanced performance since 1984, the Commerce Department reported Thursday.
The pessimistic growth rate missed even the suppressed Dow Jones assessment of a 1% gain for the quarter. Still, the initial estimate for Q1 was the most destructive since the pandemic-induced recession in 2020. GDP calculates the output of goods and services in the U.S. for three months.
Despite the disappointing number, markets paid little attention to the news, with significantly higher shares and bond yields. Some of the GDP falls came from factors possible to reverse later in the year, raising expectancies that the U.S. can avoid a recession.
“In retrospect, this could be seen as a key report,” said Simona Mocuta, chief economist at State Street Global Advisors. “It reminds us that growth has been great, but things are changing, and they won’t be that great going on.”