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U.S. economy shrank by 1.5% in Q1 but consumers kept spending

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Last quarter’s drop in the U.S. gross domestic product – the broadest gauge of economic output – does not likely signal the start of a recession.
The U.S. economy shrank in the first three months of the year even though consumers and businesses kept spending at a solid pace, the government reported Thursday in a slight downgrade of its previous estimate for the January-March quarter. Last quarter’s drop in the U.S. gross domestic product — the broadest gauge of economic output — does not likely signal the start of a recession. The contraction was caused, in part, by a wider trade gap: The nation spent more on imports than other countries did on U.S. exports. The trade gap slashed first-quarter GDP by 3.2 percentage points. And a slower restocking of goods in stores and warehouses, which had built up their inventories in the previous quarter for the 2021 holiday shopping season, knocked nearly 1.1 percentage points off the January-March GDP. Analysts say the economy has likely resumed growing in the current April-June quarter. The Commerce Department estimated that the economy contracted at a 1.5 percent annual pace from January through March, a slight downward revision from its first estimate of 1.4 percent, which it issued last month. It was the first drop in GDP since the second quarter of 2020 — in the depths of the COVID-19 recession — and followed a robust 6.9 percent expansion in the final three months of 2021. The nation remains stuck in the painful grip of high inflation, which has caused particularly severe hardships for lower-income households, many of them people of color. Though many U.S. workers have been receiving sizable pay raises, their wages in most cases haven’t kept pace with inflation. In April, consumer prices jumped 8.3 percent from a year earlier, just below the fastest such rise in four decades, set one month earlier. High inflation is also posing a political threat to President Biden and Democrats in Congress as midterm elections draw near. A poll this month by The Associated Press-NORC Center for Public Research found that Biden’s approval rating has reached the lowest point of his presidency — just 39 percent of adults approve of his performance — with inflation a frequently cited contributing factor.

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