By Lucia Muttigani
WASHINGTON (Reuters) – The U.S. economy contracted unexpectedly in the first quarter, affecting the recovery of the Govt-19 lawsuit, but the slump in output paints a grim picture of performance amid solid domestic demand.
The Commerce Department said in its GDP forecast on Thursday that GDP had fallen at an annual rate of 1.4% over the past quarter. This is the first decline since the epidemic recession nearly two years ago. The economy grew by a strong 6.9% in the fourth quarter.
According to a Reuters study, the economy is expected to grow at a rate of 1.1%. Estimates ranged from a 1.4% contraction to a 2.6% growth.
The fall in production reflected the trade deficit and moderate stockpile momentum. While this figure could lead to fears of stagnation and recession in some quarters, it is not a true reflection of the economy.
Consumer spending was solid and business investment in equipment was sharply accelerated.
The Federal Reserve is expected to raise interest rates by 50 basis points next Wednesday and will soon begin to lower its asset portfolio. The US Federal Reserve raised its interest rate by 25 points in March, the first increase in more than three years of fighting inflation. Annual consumer prices rose to a 40-year high in March.
Despite rising food and petrol prices, there is no sign of consumers retreating.
Strong wage gains in the midst of a tight job market and savings of at least $ 2 trillion in savings accumulated during epidemics provide relief from inflation.
Labor market conditions were strengthened by a separate Labor Department report showing that initial demands for unemployment benefits fell to 5,000 to 180,000 in the week ended April 23.
Economists forecast 180,000 orders last week. According to Bank of America Securities data, low-income consumers are more likely to be affected by inflation.
However, there are fears that the central bank may tighten monetary policy and push the economy into recession over the next 18 months.
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