In the first quarter of 2022 the US economy shrank at an annualized rate of 1.5%, the worst showing since the COVID recession, according to the Bureau of Economic Analysis in a new release. Although there was a small increase in consumer spending, it was overtaken by lower business inventory spending and lower residential investment activity. This was in contrast to the previous quarter’s increase of 6.9%, which was the fastest hike in 40 years as car dealers replenished drained inventories and exports began to surge.

Additionally, a wave of COVID cases caused by the Omicron variant continued to disrupt business activity as government assistance programs such as forgivable business loans and social benefits ran out, slowing money inflow to the economy and reducing spending.

Meanwhile exports, government spending, and business inventories were all declining, as consumers seeking lower prices for goods cause imports to increase.

On the other side, consumer spending increased 3.1% for the first three months of the year. That was the fastest rate of increase since the second quarter of 2021, when emergence from the lockdowns caused a surge of 6.8%

The report has triggered a downgrading of estimates by analysts for conditions going forward. Pantheon Macro chief economist Ian Shepherdson said, “We continue to expect a solid rebound in second-quarter growth, but our initial hopes of a 5%-plus print have faded a bit.”