April 29, 2022

GDP contracted in first quarter of 2022, first time since 2020

data The Commerce Department Thursday released its first estimate of economic activity for the first quarter of 2022, which showed that the U.S. economy contracted by 1.4 percent, the first contraction since Q2 2020.

Weighing in on the news, NAFCU President and CEO Dan Berger focused on the important role credit unions play during this economic slowdown. “Today’s GDP numbers don’t reflect what’s happening on Wall Street, they reflect what’s happening on Main Street,” stated Berger. “This incredible economic downturn continues to hurt small businesses and families, and it’s critical that Americans have access to financial services and products to get them through the uncertainties of this financial environment. I’m proud that NAFCU member credit unions remain steadfast in serving their communities and providing superior financial counsel for those who need it most.”

In a new NAFCU Macro Data Flash report, NAFCU’s Chief Economist and Vice President of Research Curt Long mainly attributed this quarter’s contraction, which fell below even the lowest expectations of forecasters, to inventory build and trade.

"Inventories played an outsized role in the growth of the previous quarter, so it was no surprise that it gave back some of those gains," said Long. "Inventories still grew by a significant amount, albeit slower than the prior quarter. The move to restock inventories led to a surge in imports, which grew the trade deficit.”

"Meanwhile, exports fell due to weak demand abroad," added Long. "Given geopolitical realities and the soaring value of the dollar, trade will remain a drag on the economy."

According to the estimate, the major contributor to the decline in real GDP came from net exports (-3.2 percentage points). The change in private inventories also subtracted from growth by 0.84 percentage points, as did government expenditures (-0.48). Personal consumption grew to add 1.83 percentage points to GDP.

PCE inflation, the Fed's preferred inflation metric, rose 7.0 percent. Meanwhile, core PCE inflation, excluding food and energy, rose 5.2 percent.

"The Fed will proceed with an aggressive pace of rate hikes this summer despite the signals of slowing growth," Long concluded. "NAFCU expects the combination of trade and waning fiscal stimulus to continue to weigh on GDP for the remainder of the year.”

For more economic updates from NAFCU's award-winning research team, view all of NAFCU's Macro Data Flash reports.