GDP Shrinks Amid Drop in Motor Vehicle Spending

The U.S. real gross domestic product (GDP) shrank at an annual rate of 1.4% in the first quarter of this year, according to figures released Thursday (April 28) by the Bureau of Economic Analysis (BEA).

This drop followed a 6.9% growth in GDP in the fourth quarter, and “reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending,” the bureau said in the release.

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Imports, which are a subtraction in the calculation of GDP, rose, as did personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment.

The BEA said the drop in private inventory investment was led by declines in wholesale trade (primarily motor vehicles) and retail trade (“other” retailers and motor vehicle dealers).

Meanwhile, decreases in the nondurable goods category in the expert sector were offset somewhat by a rise in businesses services, largely financial services.

“The decrease in federal government spending primarily reflected a decrease in defense spending on intermediate goods and services,” the release stated. “The increase in imports was led by increases in durable goods (notably, nonfood and nonautomotive consumer goods).”

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The rise in PCE was due to an increase in services — chiefly healthcare — offset a bit by a decrease in goods. And that decrease — led by gasoline and other energy expenditures — was itself offset by an increase in durable goods, led by automobiles and auto parts.

The release also noted the impact of the pandemic on the economy, as an increase in cases connected to the omicron variant of COVID-19 led to continued restrictions. Meanwhile, government assistance programs ended, leading to a drop in loans to businesses, grants to state and local government and social benefits to households.

A second estimate of the first quarter’s GDP, based on more complete data, is due to be released May 26, the BEA said.