Biden Effect: U.S. GDP Turned Negative in First Quarter

The U.S. has not entered a recession – yet – but the first contraction since the early days of the pandemic may signal what’s to come.

The Wall Street Journal reported Thursday morning that things aren’t as rosy as the White House, and most in the media portend.

“The decline in U.S. gross domestic product marked a sharp reversal from a 6.9% annual growth rate in the fourth quarter, the Commerce Department said Thursday. The drop also marked the weakest quarter since spring 2020, when the Covid-19 pandemic and related shutdowns drove the U.S. economy into a deep—albeit short—recession.

WSJ, as most media outlets this morning, then go on to cite “most economists” – that anonymous group that says something counter to the evidence in hopes of changing the narrative. That ethereal band of number crunches supposedly believe that this is but a blip and that things will be better next month.

“Despite the slip, many economists think that overall the economy remains on track to resume modest growth in the second quarter and beyond, in part because consumers and businesses are continuing to spend.”

Just remember that these are the same “most economists” that told everyone last year that “inflation is transitory”. The article points at higher consumer spending (2.7% in February), but leaves out that disposable income only rose by 0.1%. People are using credit cards to survive the current economic environment.

There are many things weighing on the economy:

  • The Labor Force Participation Rate hasn’t returned to pre-pandemic levels (not enough workers)
  • Inflation was last reported to be 8.5% and is likely to go higher
  • Energy prices (gas, electricity, etc) are skyrocketing
  • While worker’s incomes rose 5.6%, inflation has erased those gains completely
  • To combat inflation, the fed is raising interest rates
  • All the stimulus is gone (Coronavirus aid, PPP, up-front Child Tax Credits, etc)

Between gas and groceries, working families don’t have extra money to spend. For those that do, everything costs much more than it did just a few years ago. Have you tried to buy a computer, car, or appliance lately?

Everyone would love to take “most economists” at their word and we certainly all hope for things to get better, but seriously, is the GDP slump also transitory?

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Rich Mitchell