Consumer spending was weaker in early 2022 than previously believed, an indication that cracks could also be forming in a vital pillar of the U.S. economy.
Spending, adjusted for inflation, increased 0.5 percent in the primary three months of the 12 months, the Commerce Department said Wednesday. That represented a pointy downward revision from the federal government’s earlier estimate of 0.8 percent growth, and a slowdown from the 0.6 percent growth in the ultimate quarter of 2021. Spending on services rose significantly more slowly than initially reported, while spending on goods actually fell.
Gross domestic product, the broadest measure of economic output, shrank 0.4 percent in the primary quarter, adjusted for inflation, the equivalent of a 1.6 percent annual rate of contraction. That was only barely weaker than previously reported, because the federal government raised its estimate of how much firms added to their inventories, partly offsetting the weaker consumer spending.
Even after the revision, consumer spending remained solid in the primary quarter. But any deceleration is important because consumers have been the engine of the economic recovery. Spending had appeared resilient within the face of the fastest inflation in a generation — an image that appears not less than somewhat different in light of the newest revisions.
“That prior estimate of first-quarter G.D.P. was far more comfortable than today’s look,” said Michelle Meyer, chief U.S. economist for the Mastercard Economics Institute. “There may be reason for more concern after taking a look at today’s report.”
Economists in recent weeks have steadily lowered their forecasts of economic growth for the remainder of the 12 months. IHS Markit on Thursday estimated that G.D.P. would grow at a 0.1 percent annual rate within the second quarter; earlier this month, it expected the economy to grow at a 2.4 percent rate this quarter. Some forecasters now say it is feasible that economic output will shrink for the second consecutive quarter — a typical, though unofficial, definition of a recession.
The National Bureau of Economic Research, the nation’s semiofficial arbiter of when business cycles begin and end, defines recessions otherwise, as “a big decline in economic activity that’s spread across the economy and lasts greater than a couple of months.”
Most economists agree that, by that definition, the USA is just not yet in a recession. But a growing variety of economists consider that a recession is probably going in the following 12 months, because the Federal Reserve raises rates of interest in a bid to tame inflation.