Record trade deficit weighs on US economy in first quarter

The US economy contracted in the first quarter amid a record trade deficit, the government confirmed on Wednesday (29).

Gross domestic product fell at an annualized rate of 1.6% in the last quarter, the government said in its third GDP estimate. The figure was revised down from the 1.5% decline reported last month.

The economy grew at a robust pace of 6.9% in the fourth quarter.

Economists polled by Reuters projected that the pace of contraction would not be revised.

The GDP decline in the last quarter also reflected a slower pace of inventory accumulation by companies compared to the accelerated pace of the fourth quarter, due to supply chain problems and a shortage of workers.

Final sales to private domestic buyers, which exclude trade, inventories and government spending, increased at a rate of 3.0% in the last quarter.

A 3.9% increase in this measure of domestic demand was previously reported.

The economy appears to have recovered from the first quarter’s slump, with consumer spending accelerating in April.

Business spending on equipment remained solid through May, while the goods trade deficit narrowed significantly as exports hit a record high.

But the recovery is losing steam as the Federal Reserve aggressively tightens monetary policy to fight inflation, raising fears of a recession.

The US central bank this month raised its interest rate by 0.75 percentage points, the highest since 1994. The Fed has raised interest rates by 1.50 points since March.

Retail sales fell in May, while housing permits and construction starts declined. Consumer confidence hit a 16-month low in June.