It is the first quarter for negative GDP in three years.
The U.S. economy shrank in the first quarter, as the gross domestic product (GDP) dropped 0.3%, according to the U.S. Bureau of Economic Analysis (BEA).
The GDP results came in below the consensus estimate among economists, who called for 0.4% growth in the quarter. It marks a steep drop from the previous quarter, Q4, when the economy grew at a 2.4% clip.
This marks the first quarter of negative GDP since the second quarter of 2022, when inflation rates spiked to around 7%. However, while the economy receded in the first quarter, this would not yet be considered a recession as a recession is typically defined as two consecutive quarters of negative GDP.
The BEA said the declining GDP was primarily due to an increase in imports, which are a subtraction in the calculation of GDP, a deceleration in consumer spending, and a decrease in government spending, led by a reduction in federal government spending. These drags on growth were somewhat offset by increases in investment and exports.
More imports, less federal government spending
Within imports, the GDP reflected an increase in imported consumer goods, except food and automotive. The increases were mainly in medicinal, dental, and pharmaceutical preparations, including vitamins. There was also a jump in capital goods imports, except automotive — mainly computers, peripherals, and parts.
The decrease in government spending was due to a reduction in federal government spending, led by defense consumption expenditures. That was partly offset by an increase in state and local government spending.
The deceleration in consumer spending showed increases in both services and goods.
“Within services, increases were widespread, led by spending on health care as well as housing and utilities. Within goods, an increase in nondurable goods was partly offset by a decrease in durable goods,” the report stated.
Private inventory investment was the largest contributor to the increase in investment, due mainly to a rise in wholesale trade, notably, drugs and sundries.
The report also included a note on the California wildfires, saying it is not possible to estimate the overall impact of the California wildfires on first-quarter GDP. However, preliminary estimates show that the wildfires resulted in losses of $34.0 billion in privately owned fixed assets and $11.0 billion in state and local government-owned fixed assets.
PCE Inflation rises in Q1 to 3.6%
Among other data points, real final sales to private domestic purchasers, which is the sum of consumer spending and gross private fixed investment, rose 3% in the quarter compared to 2.9% in the fourth quarter.
Also, the price index for gross domestic purchases climbed 3.4% compared with an increase of 2.2% in the fourth quarter.
Further, in a sign of rising inflation, the personal consumption expenditures (PCE) price index increased 3.6% for the quarter, compared with an increase of 2.4% the previous quarter. Excluding food and energy prices, the PCE price index increased 3.5%, compared with an increase of 2.6 percent.
Stocks opened lower on Wednesday with the Dow Jones down about 440 points, the S&P 500 off 85 points, and the Nasdaq dropping about 360 points.
