The U.S. economy shrank last quarter for the first time since the pandemic recession struck two years ago, contracting at a 1.4% annual rate, but consumers and businesses kept spending in a sign of economic durability, according to an Associated Press report.
The economy’s overall decline in the January-March quarter does not mean a recession is likely in the coming months. Most economists expect a rebound this quarter as solid hiring and wage gains sustain growth.
Instead, the steady spending by households and companies suggests that the economy will likely keep expanding this year even though the Federal Reserve plans to raise rates aggressively to fight the inflation surge. The first quarter was hampered mainly by a slower restocking of goods in stores and warehouses and by a sharp drop in exports.
“The report isn’t as worrisome as it looks,” said Lydia Boussour, lead U.S. economist at Oxford Economics. “The details point to an economy with solid underlying strength that demonstrated resilience in the face of Omicron, lingering supply constraints and high inflation.”