Uh-Oh: U.S. Economy Shrank in First Quarter, but NY Times Says 'All is Well'

The U.S. economy shrank by 0.4% in the first quarter of 2022 — 1.4% on an annualized basis. Since a “recession” is generally defined as two straight quarters of negative growth, we can all celebrate the fact that we’re halfway to misery.

It’s not like recession indicators haven’t been blinking red for a while. But none of this fazes the happy folk at the New York Times who see absolutely no cause for concern. The Times economics reporter Ben Casselman wrote that “strong consumer spending and continued business investment suggested that the recovery remained resilient.”

Oh, yeah?

The decline was mostly a result of the two most volatile components of the quarterly reports: inventories and international trade. Lower government spending was also a drag on growth. Measures of underlying demand showed solid growth.

Most important, consumer spending, the engine of the U.S. economy, grew 0.7 percent in the first quarter despite the Omicron wave of the coronavirus, which restrained spending on restaurants, travel and similar services in January.

Consumers are on a spending spree now because they want to buy stuff today rather than wait a month or two when the same item will be more expensive.

But choppy waters may lie ahead. The first-quarter data mostly predates the spike in gas prices that has accompanied Russia’s invasion of Ukraine and the lockdowns in China that have threatened to further disrupt global supply chains. The Federal Reserve in March raised interest rates for the first time since the pandemic began, and several more rate increases are expected this year as policymakers seek to tame the fastest inflation in four decades.

“We are watching a bunch of seismic changes in real time,” said Wendy Edelberg, director of the Hamilton Project, an economic policy arm of the Brookings Institution.

Related: How Bad Will the Biden Recession Be?

Economists used to think high inflation and negative growth were a rarity — until they met Jimmy Carter and Joe Biden.

What is it about Democratic presidents that brings out the worst in the economy?