WASHINGTON (Reuters) - The U.S. economy contracted in the first quarter amid a record trade deficit, the government confirmed on Wednesday, but that picture is misleading as domestic demand was strong.
Gross domestic product fell at a 1.6% annualized rate last quarter, the government said in its third GDP estimate. That was revised down from the 1.5% pace of decline reported last month. The economy grew at a robust 6.9% pace in the fourth quarter.
Economists polled by Reuters had forecast the pace of contraction would be unrevised at a 1.5% rate.
The decline in GDP last quarter also reflected a slower pace of inventory accumulation by businesses relative to the fourth quarter’s brisk rate due to supply-chain dislocations and worker shortages.
Final sales to private domestic purchasers, which exclude trade, inventories and government spending, increased at a 3.0%rate last quarter. This measure of domestic demand was previously reported to have risen at a 3.9% rate.
The economy appears to have rebounded from the first-quarter 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 bounce is losing momentum as the Federal Reserve aggressively tightens monetary policy to combat inflation, heightening fears of a recession.
The U.S. central bank this month raised its policy rate by three-quarters of a percentage point, its biggest hike since 1994. The Fed has increased its benchmark overnight interest rate by 150 basis points since March.