The U.S. economy contracted in the first quarter due to a record trade deficit, the U.S. government confirmed on Wednesday (29th), but the situation was contradictory due to strong domestic demand.
Gross domestic product fell at an annualized rate of 1.6% last quarter, the government said in its third GDP forecast, a revision from the 1.5% recession reported last month. The economy grew at a robust 6.9% pace in the fourth quarter.
The decline in GDP last quarter also reflected supply chain dislocations and labor shortages, with businesses building up inventories at a slower pace relative to the pace of activity in the fourth quarter.
Final sales of domestic private purchases, which exclude trade, inventories and government spending, rose 3.0 percent in the last quarter. Earlier reports said the measure of domestic demand grew at a rate of 3.9%.
The economy appeared to have rebounded from a slump in the first quarter, with consumer spending accelerating in April.
Business spending on equipment remained solid throughout May, while the merchandise trade deficit narrowed significantly as exports hit record highs.
But the rally is running out of steam as the Federal Reserve aggressively tightens monetary policy to fight inflation, fueling recession fears.
The Fed raised its policy rate this month by three-quarters of a percentage point, the largest increase since 1994. The Fed has raised its benchmark overnight rate by 150 basis points since March.
Retail sales fell in May, while housing starts and building permits fell. Consumer confidence hit a 16-month low in June.
