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The nation’s gross domestic product dropped 1.4% in the first quarter, down from 6.9% growth in last year’s fourth quarter, the U.S. Commerce Department’s Bureau of Economic Analysis reported today.
“The decrease in real GDP reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased,” the news release said. “Personal consumption expenditures, nonresidential fixed investment and residential fixed investment increased.”
Joel Kan, assistant vice president of economic and industry forecasting for the Mortgage Bankers Association, said the GDP dropped due to a contraction in exports.
“The good news is that consumer spending remained strong, particularly for services, as much of that sector has returned close to pre-pandemic levels,” said Kan. “Households continue to benefit from a strong job market and wage growth.
“Spending on non-durable goods fell for the first time in over a year, potentially impacted by rapidly increasing prices. Business investment had its largest contribution to overall growth in a year, indicating additional underlying strength in the economy,” he added.
Residential spending, the Commerce Department said, was up 2.1% in the first quarter. That number, says the Bureau’s spokeswoman Jeannine Aversa, reflects housing construction, housing starts and home improvement expenditures.
"The drop in GDP was a bit of surprise, but it doesn't really signal a recession," said Duke University economist Connel Fullenkamp. "In fact, one of the reasons for the fall in GDP was the increase in imports, which is a signal of robust consumer spending. Much of the decline in GDP was due to drops in government spending and inventory investment, which look like short-term or one-off phenomena.
"Generally, the consumer spending that is powering the economy still seems pretty robust--and it's incredibly easy to find a job, especially an entry-level job," he added.
It is unknown if the first quarter’s drop in GDP is indicative of what the year will hold. According to the Commerce Department, GDP dropped in the first two quarters in 2020 but increased in the third and fourth quarters of that year.
“The Bureau doesn’t do forecasts of future economic activity,” said Aversa in an email to National Mortgage Professional Magazine. “The number we released today measures activity in the January to March quarter based on available data.”