US GDP fell by 1.4% in the first quarter of 22 years, lower than the market expectation of 1.1% growth
Net exports are the biggest drag on the unexpected contraction of US GDP
Personal consumption and business investment remain resilient
Something new. According to the estimate released by the Bureau of economic analysis of the U.S. Department of Commerce on April 28, the annualized GDP of the United States fell by 1.4% (year-on-year growth of 3.6%) in the first quarter of 22 years, which was lower than the consensus market expectation of 1.1% (fourth quarter of 21: annualized growth of 6.9% / year-on-year growth of 5.5%). This is the first contraction since the covid-19 epidemic blockade caused the US economy to fall into a deep recession in the second quarter of 20 years. The main sub items leading to the decline of GDP include net exports (driving the annualized chain of real GDP: - 3.20 percentage points), private inventory investment (- 0.84 percentage points) and government expenditure (- 0.48 percentage points). Personal consumption expenditure (+ 1.83 percentage points) and fixed investment (+ 1.27 percentage points) recorded growth.
The widening trade deficit was the biggest drag on the economic contraction recorded in the first quarter of 22 years. 1) Exports fell by 5.9% (fourth quarter of 21: + 22.4%; both refer to annualized month on month, if not specified, the same below), while imports increased by 17.7% (fourth quarter of 21: + 17.9%). The main drag factor of the decline in exports is the general decline in exports of non durable goods, while the main driving factor of import growth is the increase in imports of durable goods. 2) The main drag on the decline in private inventory investment was the decline in auto and parts inventories in the wholesale and retail sectors. In contrast, the contribution of rapid inventory replenishment to GDP growth in the fourth quarter of 21 reached 5.32 percentage points. 3) Federal (- 5.9%) and state and local (- 0.8%) government spending continued to decline (q4-21: - 4.3% and - 1.6%), mainly reflecting the decline in defense spending.
Chinese demand remained resilient in the first quarter of 22 years. 1) Personal spending: + 2.5% in the fourth quarter of the year (an increase of 22.5% in the first quarter). With the reduction of covid-19 cases and the relaxation of social distance measures, consumers gradually turned to service consumption (Q1 22 / Q4 21: 4.3% / 3.3%), while commodity consumption decreased (Q1 22 / Q4 21: - 0.1% / 1.1%). In terms of commodity consumption, the consumption of non durable goods decreased (the main drag factors are gasoline and other energy products), while the consumption of durable goods increased (the main driving factors are cars and parts). 2) Commercial investment increased by 9.2% in the first quarter of 22 years (fourth quarter of 21: + 2.9%), mainly driven by equipment and intellectual property investment.
Our point of view. We believe that, given that consumer demand and business investment remain strong, investors should not over interpret the unexpected contraction of overall GDP. The data will not have a material impact on the Fed's monetary policy. Despite the recent short upside down in the yield curve of 10-year and 2-year treasury bonds, we believe it is still too early to worry about the economic recession. Historically, the time interval between the upside down of the yield curve and the economic recession ranges from 5 to 23 months (see our strategy report "the impact of the upside down of the US bond yield curve on the offshore market" released on April 25, 2022).
Looking ahead, personal consumption expenditure will continue to grow steadily, benefiting from the tight labor market, steady wage growth and the savings accumulated by the government's early implementation of fiscal stimulus policies. However, high inflation is eroding people's purchasing power, and the average hourly wage growth is still lower than that of consumer prices, which may lead to a gradual slowdown in the growth of personal consumption expenditure with the end of the year. In an environment of rising energy costs, blocked supply chains and labor shortages, business investment is expected to maintain growth. As the inflation adjusted actual inventory level is still lower than the level before the epidemic, the replenishment cycle in the United States will continue for some time. At the same time, as the US economy remains strong relative to other major economies, net exports may continue to be a negative drag on economic growth. The consensus market expectation for GDP growth in 2022 has been reduced from about 3.8% at the beginning of the year to 3.2% at present, which mainly reflects the faster tightening rate of monetary policy implemented by the Federal Reserve to combat inflation than previously expected, as well as the spillover effect brought by the negative impact of the Russian Ukrainian war on major trading partners of the United States. At present, the main challenges facing the US economy include labor shortage, high inflation and the obstruction of the supply chain caused by the war with Russia and Ukraine and the epidemic.
