U.S. Economy Posts Surprise Contraction, Belying Solid Consumer
Comment of the Day

April 28 2022

Commentary by Eoin Treacy

U.S. Economy Posts Surprise Contraction, Belying Solid Consumer

This article from Bloomberg may be of interest to subscribers. Here is a section:

Against a backdrop of quicker inflation and solid spending, Fed monetary policy is still geared for a half-point rate hike next week. Nonetheless, officials need to balance tighter policy with risks to demand. 

The economy faces other potential headwinds that include knock-on effects from Russia’s war in Ukraine. Growth prospects in Europe are deteriorating, some raw materials are in short supply and the Chinese government’s severe pandemic-related lockdown measures are leaving supply chains in disarray.

The S&P 500 rose and the yield on the 10-year Treasury note remained higher along with the dollar.

“With strong growth of consumer spending, business investment and employment in the first quarter, the U.S. economy was not in a recession at the beginning of the year,” said Bill Adams, chief economist at Comerica Bank. “Growth should resume in the second quarter as the trade deficit and inventories become smaller headwinds.”

Biden blamed the contraction on “technical factors,” saying in a statement that employment, consumer spending and investment all remain strong.

Eoin Treacy's view

When you feel pressured by inventory shortages and rising prices, the natural response is to accelerate purchases. Orders also tend to be front loaded to forestall the trouble of having to worry about inventory in future.

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