The US economy contracted more than was reported in the first quarter. The Bureau of Economic Analysis released its final estimate on US first quarter GDP and it showed a 1.6% contraction in the economy in Q1.  This was 0.1% greater than the last estimate of 1.5%, which was the expectation.

The last drop in GDP before this was the second quarter of 2020, as the pandemic rocked the economy. By the fourth quarter, GDDP rose by 6.9%.

The Bureau of Economic Analysis said in a press release, “The update primarily reflects a downward revision to personal consumption expenditures (PCE) that was partly offset by an upward revision to private inventory investment.”

Personal Consumption Expenditures was revised down, from a 3.1% rise to a 1.8% rise.

Part of the problem with the Q1 GDP number is that although normally an excellent measure of the economy’s health, the Q1 number suffered due to a jump in the US trade deficit and supply chain disruptions caused by Russia’s invasion of Ukraine. Consumer spending still rose, if not by as much as previously thought, despite record high inflation, which was encouraging.

The Bureau of Economic Analysis pointed out consumers spent less on non-durable goods like groceries and gasoline, and more on durable goods like automobiles and automobile parts. However the big shift was to services, led by housing, utilities, and “other” services.

The Bureau of Economic Analysis’s advance estimate, on Q2, coming soon, may look quite different as inflation begins to weigh on consumer behavior and the reality of the Fed’s rate hikes begins to set in.

FWDBONDS Chief Economist Christopher Rupkey said, “The economy is slowly sliding in the direction of weakness as consumers are buying less to keep GDP afloat.”