The U.S. economy shrank in the first quarter amid record-high inflation, a sharp reversal that President Biden blamed on “technical factors” as he tried to tamp down concerns of a recession in the midterm election year.
The nation’s gross domestic product contracted at an annual rate of -1.4%, after fourth-quarter growth of 6.9%, the Commerce Department reported. Consumer spending was weaker than expected, and exports nose-dived.
It was the first downturn in the economy since the start of the COVID-19 pandemic in the spring of 2020. A recession is generally defined as two consecutive quarters of declining GDP.
Many economists warn that a recession is looming, especially as the Federal Reserve raises interest rates to curtail high inflation. Still, few analysts predict a recession will hit before fall.
Mr. Biden, who was wrong last summer when he insisted that high inflation would be “temporary,” said Thursday that he doesn’t foresee a recession.
“I’m not concerned about a recession,” Mr. Biden told reporters at the White House. “No one is predicting a recession now. Some are predicting there may be recession in 2023. I mean, you’re always concerned about recession, but the GDP, you know, fell to 1.4%.”
SEE ALSO: Shrinking economy poses another major headache for Democrats ahead of midterms
The gross domestic product didn’t fall “to” 1.4%, which would still be positive growth. The economy shrank in the January-to-March period at an annual rate of -1.4%.
Mr. Biden also said the economy’s performance “was affected by technical factors” that his aides explained later. The president’s advisers said atypical measurements of inventory growth and exports skewed the first-quarter performance and that the underlying economy is still strong.
White House officials said inventory growth in the first quarter was the fifth-strongest in history but was far below the record inventory growth for the fourth quarter of last year. Therefore, they said, the large change contributed -0.8% to the GDP in the first quarter.
White House economic adviser Jared Bernstein said on Twitter that the U.S. is “not nearly out of the woods on supply-chain snarls and their price impacts, with China’s Covid lockdown much in the mix. But as with so much else in the current economy, once you get under the hood, every story is a lot more nuanced than at first glance.”
White House press secretary Jen Psaki said the drop in exports was “largely because our economy is doing better than many economies around the world.”
“So while we were purchasing a lot of goods from other countries, there wasn’t the same capacity to purchase our goods,” she said.
SEE ALSO: U.S. economy shrank 1.4% in first quarter amid inflation, shortages
Republicans in Congress said the downturn, coupled with inflation that hit 8.5% in March, is a forecast of more problems to come. They said Democrats’ $1.9 trillion COVID-19 relief bill in 2021 has contributed to higher prices and hurt economic growth.
Rep. Kevin Brady of Texas, the top Republican on the tax-writing House Ways and Means Committee, called the GDP report “very troubling.”
“Under President Biden’s leadership, our economy is actually shrinking,” Mr. Brady said. “The president has missed four of the five quarterly economic projections. So Americans ought to brace for slower job growth and higher prices ahead.”
Rep. John Joyce, Pennsylvania Republican, said, “The numbers don’t lie. President Biden’s runaway spending is crippling the U.S. economy.”
Stocks roared back Thursday despite the GDP report as investors focused on strong earnings from technology companies. The Dow Jones Industrial Average rose 1.8%, and the tech-heavy Nasdaq jumped 3%.
The shrinking U.S. economy is adding to Democrats’ political problems ahead of midterm elections, when the president’s party typically loses seats in Congress. Political analysts said plunging economic activity and high prices could exacerbate the backlash against Mr. Biden and his party.
“People are always going to look for someone to blame for these kinds of economic issues,” said J. Miles Coleman, an elections analyst at the University of Virginia’s Center for Politics. “That’s likely to be Democrats, who are in power right now.”
The president pointed to strong “consumer spending and business investment and residential investment” and the lowest unemployment since 1970.
“The American economy — powered by working families — continues to be resilient in the face of historic challenges,” he said. “While last quarter’s growth estimate was affected by technical factors, the United States confronts the challenges of COVID-19 around the world, [Russian President Vladimir] Putin’s unprovoked invasion of Ukraine, and global inflation from a position of strength.”
Mr. Biden criticized congressional Republicans for a proposal that he said would end up “raising taxes on middle-class families, including half of small-business owners.” He urged Congress instead to send him legislation to increase the production of semiconductor chips “to bolster our supply chains and make more in America.”
“And Congress needs to pass legislation to lower costs and lower the deficit, reducing families’ prescription drug and utility bills and restoring fairness to our tax code — without raising taxes on anyone making less than $400,000 per year,” the president said in a statement. “That’s how we grow our economy and strengthen the middle class.”
Mr. Biden met with small-business owners Thursday to highlight the record growth of mom-and-pop establishments last year. He said aid from his administration especially helped the growth of minority-owned businesses.
“We have every indication that this trend is going to continue,” Mr. Biden said.
Still, small businesses are struggling with inflation, according to a survey this week by the National Federation of Independent Business. It found that 62% of small businesses reported that inflation substantially impacted their operations, and 84% reported lower business earnings.
The survey found that 86% of small-business owners are increasing the prices of their goods and services as a result of inflation.
