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You are here: Home / COVID-19 / US Economy Contracts in Q1 But Underlying Measures Remain Resilient

US Economy Contracts in Q1 But Underlying Measures Remain Resilient

April 28, 2022 By New York Truckstop Leave a Comment

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The United States (US) economy had a bizarre first quarter in 2022. Gross Domestic Product (GDP), adjusted for inflation, declined 0.4 percent in the first quarter, or 1.4 percent on an annualized basis, per the government estimates. This was the worst quarter for the US economy since the beginning of the Covid-19 pandemic. Factors such as the Omicron spike in January as well as inflation contributed to the decrease. 

The decrease in real GDP reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased. The decrease in private inventory investment was led by decreases in wholesale trade (mainly motor vehicles) and retail trade (notably, “other” retailers and motor vehicle dealers. 

This soaring trade deficit completely overshadowed the fact US consumers keep spending (despite a 40-year high inflation) and business investments remain strong. Consumer spending grew 0.7 percent in Q1. A clearer picture of Q1 will be released towards the end of May. The growth in consumer spending and business is more inline with original economic predictions that believed the Q1 economy was going to grow around 1 percent. It is also important to note that applications for state unemployment insurance fell slightly last week, consistent with an extremely tight labor market. 

The soaring trade deficit combined with business investments puts logistics companies and fleets of all sizes in a bind. Inventory shortages have taken their toll over the last few years with sky high prices on used equipment. So, the challenge for fleets, particularly though not exclusively for small fleets and owner operators, is buying, particularly financing equipment with high inflation and rising interest rates. We try to answer these questions and concerns here.

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