The United States shrank at a 1.5% annual rate during the first quarter of 2022, according to a Thursday report from the Bureau of Economic Analysis.
The dismal results — which represented the most severe drop since Gross Domestic Product (GDP) plummeted by 31.2% in the second quarter of 2020 — were worse than the 1.3% Dow Jones estimate and a write-down from the originally reported 1.4%, according to CNBC.
Among the reasons for the decline in economic activity were a slowdown in private inventory investment, a larger imbalance between exports and imports, and a decline in defense spending. Though consumer spending rose by 3.1%, the metric was outweighed by surging inflation.
“Business inventories have been trending down even as the price of those inventories has been rising,” Heritage Foundation research fellow EJ Antoni told The Daily Wire. “Now, because prices are so high and many businesses are hesitant to pass the full cost increase onto consumers, many businesses can’t afford to replace inventories, leading to the drawdown.”
The United States economy had been recovering from COVID-19 and the lockdown-induced recession — growing at a robust 5.7% in 2021 after contracting 3.4% in 2020. However, the economy has been troubled by various economic calamities — including persistent inflation, high gas prices, low consumer confidence, and the Russian invasion of Ukraine.
The stock market has seen a large selloff since the end of 2021 due to various economic issues; while the Dow Jones has fallen from over $36,000 at the end of 2021 to under $33,000 as of Thursday afternoon, the Nasdaq — a technology-heavy stock index — saw its worst decline since the dot-com selloff in 2001.
Antoni told The Daily Wire that there is “very little good news” moving into the second quarter of 2022 and beyond.
“There is a large amount of wholesale inflation that will be passed on to consumers in the coming months and almost all other data are pointing in the wrong direction,” he described. “There is a long way to go before inflation is under control, so the second quarter will very likely still see the same problems that plagued the first three months of the year.”
“Consumers have depleted all of the savings from the pandemic, real wages have declined, and credit card debt is exploding — all in an environment of rising interest rates,” he continued. “People cannot afford to maintain their standard of living and are going into debt just as borrowing costs are set to explode. This is a recipe for disaster.”
Many business leaders are likewise warning of heightened recessionary risk.
Bridgewater Associates co-CIO Bob Prince, for example, said the economy is “on the cusp of” stagflation during an interview at the World Economic Forum. The term “stagflation” refers to sluggish economic growth coupled with high inflation — and is especially characteristic of the economy of the late 1970s, in which an oil shock that occurred under the leadership of President Jimmy Carter induced a recession amid rising price levels.
“The markets are under-discounting the inflation picture,” Prince explained. “The sustainability, the self-reinforcing of the inflation is not discounted. The degree of tightening over time is not discounted.”
Pershing Square Capital Management CEO Bill Ackman said that there are two ways the United States can escape soaring inflation — the Federal Reserve taking a hardline stance on rising price levels, or an economic collapse.
“The only way to stop today’s raging inflation is with aggressive monetary tightening or with a collapse in the economy,” Ackman argued. “There is no prospect for a material reduction in inflation unless the Fed aggressively raises rates, or the stock market crashes, catalyzing an economic collapse and demand destruction.”
At a press conference earlier this week, however, President Joe Biden denied that the United States is bound for another recession. In addition to emphasizing lower unemployment rates, he argued that his administration is doing what they can with respect to gas prices and other phenomena.
“The price of gas at the pump is something that I told you — you heard me say before — it would be a matter of great discussion at my kitchen table when I was a kid growing up. It’s affecting a lot of families,” Biden explained. “But we have released over two hundred and, I think, fifty-seven thousand — million barrels of oil, I should say. Us and the rest of the world we convinced to get involved. It’s helped, but it’s not been enough.”