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    Consumer Spending Weaker Than Reported, a Bad Sign for the Economy

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    Consumer spending was weaker in early 2022 than previously believed, a sign that cracks may be forming in a crucial pillar of the U.S. economy.Spending, adjusted for inflation, increased 0.5 percent in the first three months of the year, the Commerce Department said Wednesday. That was a sharp downward revision from the government’s earlier estimate of 0.8 percent growth, and a slowdown from the 0.6 percent growth in the final quarter of 2021. Spending on services rose significantly more slowly than initially reported, while spending on goods actually fell.Gross domestic product, the broadest measure of economic output, shrank 0.4 percent in the first quarter, adjusted for inflation, the equivalent of a 1.6 percent annual rate of contraction. That was only slightly weaker than previously reported, because the government raised its estimate of how much companies added to their inventories, partly offsetting the weaker consumer spending.Even after the revision, consumer spending remained solid in the first quarter. But any deceleration is significant because consumers have been the engine of the economic recovery. Spending had appeared resilient in the face of the fastest inflation in a generation — a picture that looks at least somewhat different in light of the latest revisions.“That prior estimate of first-quarter G.D.P. was much more comfortable than today’s look,” said Michelle Meyer, chief U.S. economist for the Mastercard Economics Institute. “There is reason for more concern after looking at today’s report.”Economists in recent weeks have steadily lowered their forecasts of economic growth for the rest of the year. IHS Markit estimated on Thursday that G.D.P. would grow at a 0.1 percent annual rate in the second quarter; earlier this month, it expected the economy to grow at a 2.4 percent rate this quarter. Some forecasters now say it is possible that economic output will shrink for the second consecutive quarter — a common, though unofficial, definition of a recession.The National Bureau of Economic Research, the nation’s semiofficial arbiter of when business cycles begin and end, defines recessions differently, as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”Most economists agree that, by that definition, the United States is not yet in a recession. But a growing number of economists believe that a recession is likely in the next year, as the Federal Reserve raises interest rates in a bid to tame inflation. More

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    Biden Administration Plays Down Growth Decline in G.D.P. Report

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    The White House dismissed a slump in first-quarter growth that was driven by a quirk in inventories and a jump in imports, emphasizing that Thursday’s report on gross domestic product also pointed to underlying strength in consumer spending.G.D.P. declined 0.4 percent in the first quarter after adjusting for inflation, or 1.4 percent on an annualized basis, the Commerce Department said Thursday. Companies had stockpiled inventories in the fourth quarter and built them more slowly at the start of the year, and imports far outstripped exports as Americans bought goods from abroad, driving the decline.“While last quarter’s growth estimate was affected by technical factors, the United States confronts the challenges of Covid-19 around the world, Putin’s unprovoked invasion of Ukraine, and global inflation from a position of strength,” President Biden said in a statement following the release, referring to President Vladimir V. Putin of Russia. Mr. Biden also noted that “consumer spending, business investment, and residential investment increased at strong rates.”Mr. Biden and Democrats are facing a challenging midterm election year as inflation runs at its fastest pace in four decades, chipping away at household budgets and eroding consumer confidence. At the same time, the Federal Reserve is raising interest rates to try to keep rapid price increases from becoming permanent, which could begin to meaningfully cool down the economy just as voters head to the polls.The administration has tried to pin high inflation on Russia’s invasion of Ukraine. While the war has pushed gas and other commodity prices higher, inflation was high even before Russia’s attack.Republicans have seized on rising prices to blast Mr. Biden’s economic policies. The decline in growth at the start of the year gave them room to ramp up that criticism.“Accelerating inflation, a worker crisis, and the growing risk of a significant recession are the signature economic failures of the Biden administration,” Representative Kevin Brady, a Texas Republican, said in a news release on Thursday.Representative Kevin McCarthy of California, the House Republican leader, also blamed Democrats for the drop in growth and 40-year high inflation levels.“In 15 months, one-party Democrat rule has squandered America’s recovery and left you paying the price,” Mr. McCarthy wrote on Twitter.The Biden administration’s 2021 economic stimulus, which sent checks to households and provided other relief at a time when the job market was already recovering, has been criticized by economists for helping to stoke excessively strong consumer demand. That probably ramped up inflationary pressures as the economy reopened, some research has suggested.Republicans often seize on that to argue that the burst in inflation is the administration’s fault. But administration officials point out that their policies helped to drive a swift recovery, came at an uncertain moment, and built on a pandemic response started under the Trump administration.In a speech on Thursday, Treasury Secretary Janet L. Yellen defended the scale of the efforts to support the economy. She recalled the dire economic projections in the early days of the pandemic and said that the spending was needed to avert a worst-case scenario, though some economists warned that the final installation in 2021 was too much and too poorly targeted even at the time of its passage.“Throughout 2020, and into 2021, the path of the pandemic, including its severity and the role of future viral strains could not be predicted,” Ms. Yellen said at an event at the Brookings Institution held by the Hamilton Project and Hutchins Center. “Given this uncertainty, the recovery packages sought to protect against tail risk.” More

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    Economy Contracted in the First Quarter, but Underlying Measures Were Solid

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    The U.S. economy contracted in the first three months of the year, but strong consumer spending and continued business investment suggested that the recovery remained resilient.Gross domestic product, adjusted for inflation, declined 0.4 percent in the first quarter, or 1.4 percent on an annualized basis, the Commerce Department said Thursday. That was down sharply from the 1.7 percent growth (6.9 percent annualized) in the final three months of 2021, and was the weakest quarter since the early days of the pandemic.The decline was mostly a result of the two most volatile components of the quarterly reports: inventories and international trade. Lower government spending was also a drag on growth. Measures of underlying demand showed solid growth.Most important, consumer spending, the engine of the U.S. economy, grew 0.7 percent in the first quarter despite the Omicron wave of the coronavirus, which restrained spending on restaurants, travel and similar services in January.“Consumer spending is the aircraft carrier in the middle of the ocean — it just keeps plowing ahead,” said Jay Bryson, chief economist for Wells Fargo.But choppy waters may lie ahead. The first-quarter data mostly predates the spike in gas prices that has accompanied Russia’s invasion of Ukraine and the lockdowns in China that have threatened to further disrupt global supply chains. The Federal Reserve in March raised interest rates for the first time since the pandemic began, and several more rate increases are expected this year as policymakers seek to tame the fastest inflation in four decades.“We are watching a bunch of seismic changes in real time,” said Wendy Edelberg, director of the Hamilton Project, an economic policy arm of the Brookings Institution.The biggest challenge facing the economy is inflation. Consumer prices rose at a 7 percent annual rate in the first quarter, and Americans’ after-tax incomes, adjusted for inflation, fell for the fourth quarter in a row. So far, higher prices have done little to dampen consumers’ willingness to spend, but that will change if inflation keeps outpacing income gains, said Beth Ann Bovino, chief U.S. economist for S&P Global.“There’s a tipping point,” she said. Sometime this year, she added, “I’m expecting to see households starting to respond either by trading down, looking for deals, being less willing to pay higher prices.” More

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    G.D.P. Report Shows Inflation Bite in Economy

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    Here’s a notable fact about the U.S. economic recovery: Inflation-adjusted output last quarter was just 1 percent below where it would have been if the pandemic had never happened.Here’s another one: Ignoring inflation, output is 1.7 percent above where it would have been absent the coronavirus.Those two facts help explain the confusing, contradictory nature of the late-pandemic economy. On the one hand, the recovery has been remarkably swift by both historical standards and compared with what forecasters expected when the crisis began. On the other hand, a surprising surge in inflation is preventing the economy from rebounding more quickly, or feeling more normal. And to some extent, the same forces — the remarkable levels of aid provided by the government, and the unusual nature of the pandemic recession itself — are responsible for both trends.The chart below helps tell the story. Inflation-adjusted gross domestic product (the dark blue line) has rebounded sharply since the early months of the crisis, but has yet to return to its prepandemic trend. That might not seem too surprising; businesses have mostly reopened, but the pandemic is still restraining daily activities, at least for many people.But the second line on the chart, in light blue, shows that the story is a bit more complicated than that. In non-inflation-adjusted terms, gross domestic product — in simple terms, everything we make and spend in a given three-month period — has surged significantly beyond its pre-Covid trend. In dollar terms, we are producing and spending as much as ever. But because of inflation, those dollars are worth less than before. More

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    U.S. Economy Slowed in Third Quarter

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    Economic growth slowed sharply over the summer as supply-chain bottlenecks and the resurgent pandemic restrained activity at stores, factories and restaurants.Gross domestic product, adjusted for inflation, grew 0.5 percent in the third quarter, the Commerce Department said Thursday. That was down from 1.6 percent in the second quarter, dashing earlier hopes that the recovery would accelerate as the year went on.On an annualized basis, G.D.P. rose 2 percent in the third quarter, down from 6.7 percent in the second quarter.The slowdown was partly a result of the spread of the Delta variant of the coronavirus, which led many Americans to pull back on travel, restaurant meals and other in-person activities. More recent data suggests that people have returned to those activities as virus cases have fallen, and most economists expect significantly faster growth in the final three months of the year.But another major restriction on growth may be slower to recede. The pandemic has snarled supply chains around the world, even as demand for many products has surged. The resulting backups have made it hard for U.S. stores and factories to get the products and parts they need. Economists initially expected the disruptions to be short-lived, but many now expect the issues to linger into next year. More

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    India’s Economic Figures Belie Covid-19’s Toll

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    Strong results compared with last year’s performance mask lingering weaknesses that could hold back needed job creation.NEW DELHI — The coronavirus continues to batter India’s damaged economy, putting growing pressure on Prime Minister Narendra Modi to nurture a nascent recovery and get the country back to work.The coronavirus, which has struck in two waves, has killed hundreds of thousands of people and at times has brought cities to a halt. Infections and deaths have eased, and the country is returning to work. Economists predict that growth could surge in the second half of the year on paper.Still, the damage could take years to undo. Economic output was 9.2 percent lower for the April-through-June period this year than what it was for the same period in 2019, according to India Ratings, a credit ratings agency.The coronavirus has essentially robbed India of much of the momentum it needed to provide jobs for its young and fast-growing work force. It has also exacerbated longer-term problems that were already dragging down growth, such as high debt, a lack of competitiveness with other countries and policy missteps.Economists are particularly concerned about the slow rate of vaccinations and the possibility of a third wave of the coronavirus, which could prove to be disastrous for any economic recovery.“Vaccination progress remains slow,” with just 11 percent of the population fully inoculated so far, Priyanka Kishore, the head of India and Southeast Asia at Oxford Economics, said in a research briefing last week. The firm lowered its growth rate for 2021 to 8.8 percent, from 9.1 percent.Even growth of 8.8 percent would be a strong number in better times. Compared with the prior year, India’s economy grew 20.1 percent April through June, according to estimates released Tuesday evening by the Ministry of Statistics and Program Implementation.But those comparisons benefit from comparison with India’s dismal performance last year. The economy shrank 7.3 percent last year, when the government shut down the economy to stop a first wave of the coronavirus. That led to big job losses, now among the biggest hurdles holding back growth, experts say.The coronavirus continues to batter India’s damaged economy, putting growing pressure on Prime Minister Narendra Modi.Money Sharma/Agence France-Presse — Getty ImagesReal household incomes have fallen further this year, said Mahesh Vyas, the chief executive of the Center for Monitoring Indian Economy. “Till this is not repaired,” he said, “the Indian economy can’t bounce back.”At least 3.2 million Indians lost stable, well-paying salaried jobs in July alone, Mr. Vyas estimated. Small traders and daily wage laborers suffered bigger job losses during the lockdowns than others, though they were able to go back to work once the restrictions were lifted, Mr. Vyas said in a report this month.“Salaried jobs are not similarly elastic,” he said. “It is difficult to retrieve a lost salaried job.”About 10 million people have lost such jobs since the beginning of the pandemic, Mr. Vyas said.Mr. Modi’s government moved this month to rekindle the economy by selling stakes worth close to $81 billion in state-owned assets like airports, railway stations and stadiums. But economists largely see the policy as a move to generate cash in the short term. It remains to be seen if it will lead to more investment, they say.“The whole idea is that the government will borrow this money from the domestic market,” said Devendra Kumar Pant, the chief economist at India Ratings. “But what happens if this project goes to a domestic player and he is having to borrow in the domestic market? Your credit demand domestically won’t change.”Dr. Pant added that questions remained about how willing private players would be to maintain those assets long term and how the monetization policy would ultimately affect prices for consumers..css-1xzcza9{list-style-type:disc;padding-inline-start:1em;}.css-3btd0c{font-family:nyt-franklin,helvetica,arial,sans-serif;font-size:1rem;line-height:1.375rem;color:#333;margin-bottom:0.78125rem;}@media (min-width:740px){.css-3btd0c{font-size:1.0625rem;line-height:1.5rem;margin-bottom:0.9375rem;}}.css-3btd0c strong{font-weight:600;}.css-3btd0c em{font-style:italic;}.css-w739ur{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}#NYT_BELOW_MAIN_CONTENT_REGION .css-w739ur{font-family:nyt-cheltenham,georgia,’times new roman’,times,serif;font-weight:700;font-size:1.375rem;line-height:1.625rem;}@media (min-width:740px){#NYT_BELOW_MAIN_CONTENT_REGION .css-w739ur{font-size:1.6875rem;line-height:1.875rem;}}@media (min-width:740px){.css-w739ur{font-size:1.25rem;line-height:1.4375rem;}}.css-9s9ecg{margin-bottom:15px;}.css-16ed7iq{width:100%;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-align-items:center;-webkit-box-align:center;-ms-flex-align:center;align-items:center;-webkit-box-pack:center;-webkit-justify-content:center;-ms-flex-pack:center;justify-content:center;padding:10px 0;background-color:white;}.css-pmm6ed{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-align-items:center;-webkit-box-align:center;-ms-flex-align:center;align-items:center;}.css-pmm6ed > :not(:first-child){margin-left:5px;}.css-5gimkt{font-family:nyt-franklin,helvetica,arial,sans-serif;font-size:0.8125rem;font-weight:700;-webkit-letter-spacing:0.03em;-moz-letter-spacing:0.03em;-ms-letter-spacing:0.03em;letter-spacing:0.03em;text-transform:uppercase;color:#333;}.css-5gimkt:after{content:’Collapse’;}.css-rdoyk0{-webkit-transition:all 0.5s ease;transition:all 0.5s ease;-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-eb027h{max-height:5000px;-webkit-transition:max-height 0.5s ease;transition:max-height 0.5s ease;}.css-6mllg9{-webkit-transition:all 0.5s ease;transition:all 0.5s ease;position:relative;opacity:0;}.css-6mllg9:before{content:”;background-image:linear-gradient(180deg,transparent,#ffffff);background-image:-webkit-linear-gradient(270deg,rgba(255,255,255,0),#ffffff);height:80px;width:100%;position:absolute;bottom:0px;pointer-events:none;}.css-uf1ume{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;}.css-wxi1cx{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;-webkit-align-self:flex-end;-ms-flex-item-align:end;align-self:flex-end;}.css-12vbvwq{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;}@media (min-width:740px){.css-12vbvwq{padding:20px;width:100%;}}.css-12vbvwq:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-12vbvwq{border:none;padding:10px 0 0;border-top:2px solid #121212;}.css-12vbvwq[data-truncated] .css-rdoyk0{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-12vbvwq[data-truncated] .css-eb027h{max-height:300px;overflow:hidden;-webkit-transition:none;transition:none;}.css-12vbvwq[data-truncated] .css-5gimkt:after{content:’See more’;}.css-12vbvwq[data-truncated] .css-6mllg9{opacity:1;}.css-qjk116{margin:0 auto;overflow:hidden;}.css-qjk116 strong{font-weight:700;}.css-qjk116 em{font-style:italic;}.css-qjk116 a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;text-underline-offset:1px;-webkit-text-decoration-thickness:1px;text-decoration-thickness:1px;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:visited{color:#326891;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:hover{-webkit-text-decoration:none;text-decoration:none;}“In India, things will decay for the worse rather than improve,” he said, adding that the costs to users of highways and other infrastructure could go up.During the second wave in May, Mr. Modi resisted calls by many epidemiologists, including Dr. Anthony Fauci, the director of the U.S. National Institute of Allergy and Infectious Diseases, to reinstitute a nationwide lockdown.At a vaccination site in India in June. Economists are particularly concerned about the slow rate of vaccinations and the possibility of a third wave of the coronavirus.Saumya Khandelwal for The New York TimesThe lockdowns in 2021 were nowhere near as severe as the nationwide curbs last year, which pushed millions of people out of cities and into rural areas, often on foot because rail and other transportation had been suspended.Throughout the second wave, core infrastructure projects across the country, which employ millions of domestic migrant workers, were exempted from restrictions. More than 15,000 miles of Indian highway projects, along with rail and city metro improvements, continued.On Tuesday, Dr. Pant said India’s growth estimates of 20.1 percent for the April-through-June period were nothing but an “illusion.” Growth contracted so sharply around the same period last year, by a record 24 percent, that even double-digit gains this year would leave the economy behind where it was two years ago.Economists say India needs to spend, even splurge, to unlock the full potential of its huge low-skilled work force. “There is a need for very simple primary health facilities, primary services to deliver nutrition to children,” Mr. Vyas said. “All these are highly labor intensive jobs, and these are government services largely.”One of the reasons Indian governments typically have not spent in those areas, Mr. Vyas said, is that it has been considered “not a sexy thing to do.” Another is the governments’ “dogmatic fixation” with keeping fiscal deficits in control, he said. The government simply can’t rely on private sector alone for creating jobs, Mr. Vyas said.The “only solution,” he said, is for the government to spend and spur private investment. “You have a de-motivated private sector because there isn’t enough demand. That’s what’s holding India back.” More

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    Growth Is Strong, but the Obstacles to Full Recovery Are Big

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    The new G.D.P. numbers paint a vivid picture of a nation still struggling to complete an economic readjustment.A house under construction in Culver City, Calif., last fall. Despite great demand for housing, the sector actually contracted last quarter because of supply constraints.Chris Delmas/Agence France-Presse — Getty ImagesMost of the time, a 6.5 percent rate of economic growth would warrant celebrations in the streets. Only in the weird economy of 2021 can it be a bit of a disappointment.It’s not simply that forecasters had expected a G.D.P. growth number that was a couple of percentage points higher, though they did. And it’s not even that America’s output remains below its prepandemic growth path in inflation-adjusted terms, though it is.What makes the new G.D.P. numbers on Thursday feel less than buoyant is the degree to which they reflect a nation still struggling to complete a huge economic readjustment.The report offers some sunny signs, certainly. Growth for the first half of the year easily outpaced the rates mainstream forecasters envisioned late last year, and strong growth in business equipment investment bodes well for the future.But it is an uneven economy — bursting at the seams in some sectors, while still depressed in others. The new numbers show an economy with plenty of demand, but where supply constraints in certain sectors are binding, reducing the overall pace of growth beneath what ought to be possible.Consider the housing sector. The industry is in some ways experiencing a boom, with home prices (and increasingly, rents) rising fast. Yet in terms of the G.D.P. accounting, residential investment became a big negative in the second quarter, contracting at a 9.8 percent annual rate.If builders can’t get lumber, drywall, appliances and the like at prices to “pencil out,” or to make economic sense, they can’t build houses. And so despite extraordinary demand for houses, the sector actually subtracted half a percentage point from the overall G.D.P. growth rate.There was a similar 7 percent rate of contraction in investment in business structures, which probably reflects a mix of supply constraints and uncertain future demand for certain classes of commercial real estate like offices and hotels.Then there are inventories of goods, which subtracted 1.1 percentage points from the second-quarter growth rate. Economists tend to ignore swings in inventories, as they tend not to reveal much about the future direction of the economy. In this case, though, the inventory decline is telling. It is consistent with what businesses are saying about having to draw down inventories as they struggle to keep up with demand (think, for example, of auto sales lots with far fewer cars and trucks to choose from than usual).Meanwhile, the great readjustment in the economy that needs to happen between consumption of goods versus services — although it continued in the second quarter — still has a long way to go.Consider a hypothetical world where the pandemic had never happened, and instead the economy kept growing as forecasters in January 2020 had expected it would, with the various segments of G.D.P. retaining a steady share of the economic pie.Services consumption in the second quarter remained 7.4 percent below the level it would have maintained in that alternate universe, while spending on durable goods remained 34 percent higher.Those are extraordinary shifts in what the economy is being asked to produce, and it is hardly shocking that the physical goods side of the economy would be straining at capacity in light of such an epic reallocation of demand.What has happened in recent months is not Americans shifting spending away from physical goods and toward services, but rather buying more of both, however with varying growth rates. Spending on durable goods rose at a 9.9 percent rate in the second quarter after a 50 percent rise in the first quarter. Spending on services rose 12 percent in the second quarter.Those numbers are, in effect, driving the supply strains for many physical goods.Moreover, the second-quarter data predates the surge in virus cases from the Delta variant. We don’t know yet whether its spread will affect the economy in any meaningful way, but if it does, the likely effects include making supply strains of physical goods worse and slowing the rebalancing of the economy toward services.It would be unrealistic to expect the economic trauma of 2020 to be fixed in just a few quarters, but what the drumbeat of data — both on economic output and employment — shows is that it really is going to be a grind to arrive at a new equilibrium.It’s fantastic news, of course, that the economic expansion remains robust. There was only a single quarter from 2001 to 2019 in which the annualized growth rate exceeded 6 percent; in 2021 there have now been two in a row.The healing is happening. But the new numbers reflect just how severe the scars of last year really were. More

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    Consumer Spending Was a Big Factor in G.D.P. Expansion

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    Consumers are fueling the economic recovery.Consumer spending rose 2.8 percent in the second quarter, helping to offset declines in other parts of the economy. Spending on services was particularly robust as widespread vaccinations and falling coronavirus cases led Americans to return to restaurants, nail salons and other in-person activities.“We finally saw the full pivot to services driving consumer spending instead of goods,” said Diane Swonk, chief economist for the accounting firm Grant Thornton.Spending on goods remained strong, too, partly reflecting the continuing impact of the third round of stimulus checks, which arrived in Americans’ bank accounts in the spring.Business investment was also relatively strong, rising 1.9 percent, as companies stepped up spending on technology and equipment.The housing sector, however, was a drag on growth, shrinking 2.5 percent after three straight quarters of strong gains. That might seem surprising given stories of frenetic bidding wars in red-hot housing markets. But what matters to G.D.P. is construction, and new home building has been hampered by shortages of labor and supplies, and in particular the high price of lumber.Overall growth in the second quarter fell significantly short of economists’ expectations. But that was largely because of weaker-than-expected government spending, particularly at the state and local level, as well as an unexpectedly sharp drop in inventories. Both of those factors are likely to reverse later this year. More