🎉Are we on the right track? 🗽

The first-quarter GDP in the US registered a 1.4% contraction. This has been the stumbling block to an all-out rally, and the discussion of an impending technical recession is still alive. Beneath this figure, the general economy is still alright. 

⏳The headwinds📉

As we have seen, the collective headwinds of Omicron, the Ukraine war and lockdowns in China appeared to dampen growth abroad than in the US. But, on the flip side, domestic spending continued to grow even as government spending and global economic growth moderated. 

Healthy domestic demand is a crucial variable toward understanding the economy’s progress. Together with housing purchases and business investment, we see consumer spending contributed 3.2% to the first quarter’s growth. This contribution is a rise from 2.4% in the fourth quarter. 

🏚Work , House and Business investment 🍺

The flashlight on the labour market also points to a sunny day. The economy registered 1,7 million jobs for the first quarter. The firm employment situation, coupled with savings and wealth accumulated during the pandemic, helped support spending even when gas pump prices shot to the moon. 

Housing is also a bright spot. All-cash buyers continued to be the primary market driver as all-cash sales surged in the first quarter, which dampened opportunity for many first-time buyers. 

We are also seeing business investment on a firmer footing as the supply chain starts to ease and businesses can reduce their backlogs and initiate their delayed spending, especially in capital equipment, which boosted imports in March. 

🩺So what went wrong?💊

The report for the first quarter sees weakness in inventories accumulation as most had already been replenishing during the fourth quarter, perhaps. Also, government spending was reduced due to a drop in defence spending and the late delivery of the 2022 budget. Likewise, we see the explosive growth of trade deficit and exports dragged down considerably with a weaker external economy while imports rose sharply. 

Most of the imports increased due to capital goods imports as factories are likely to ramp up production again through the supply chain should remain tight with China’s recent lockdown. 

So what’s the conclusion? Perhaps the weaker reading in the first quarter is a result of weakness abroad rather than the fragile nature of the US economy. Pika World believes that resilient domestic spending can continue to drive growth as the Fed balance the acts of monetary policy to cool down demands. 

Hopefully, we do get a soft landing in the process of a valuation adjustment to the market as we shift towards the late cycle transition.