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Consumer Spending Weaker Than Reported, a Bad Sign for the Economy

Private consumption in early 2022 is weaker than previously thought, indicating that key pillars of the US economy may be cracked.

Inflation-adjusted spending increased 0.5% in the first three months of the year, Ministry of Commerce Said on wednesday.. This represents a sharp downward revision from the government’s previous estimate of 0.8% growth and a slowdown from 0.6% growth in the final quarter of 2021.

Gross domestic product, the broadest measure of economic production, shrank 0.4% in the first quarter, equivalent to an inflation-adjusted annual contraction rate of 1.6%. This was only slightly weaker than previously reported, as the government raised estimates of the amount that companies added to their inventories, partially offsetting weakness in personal consumption.

Even after the revision, personal consumption remained strong in the first quarter. However, the slowdown is important because consumers are the driving force behind the economic recovery. In the face of the fastest inflation of a generation, spending seemed resilient — a picture that looks at least somewhat different in the light of the latest revisions.

“Previous estimates of GDP for the first quarter were much more comfortable than they look today,” said Michelle Meyer, Chief US Economist at the Mastercard Economics Institute. “There is more reason to worry after seeing today’s report.”

Economists in recent weeks have steadily lowered their forecasts of economic growth for the rest of the year. Thursday’s IHS Markit estimated GDP to grow at an annual rate of 0.1% in the second quarter. Earlier this month, economic growth was expected to be 2.4% this quarter. Some predictors say that economic production may decline for the second straight quarter, an informal but general definition of a recession.

National Bureau of Economic Research, a national semi-official arbitrator on when the business cycle begins and ends, Defining recession differentlyAs “a significant decline in economic activity that has spread throughout the economy and lasted for more than a few months.”

Most economists, by definition, agree that the United States has not yet fallen into recession. But as the Federal Reserve raises interest rates to curb inflation, more economists think a recession is likely next year.

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