Q1 2022 GDP Doesn’t Mean a Recession Isn’t Imminent

After the GDP news broke, we discovered that consumer spending grew even faster than we thought. Personal consumption grew in March by 1.1% in nominal dollars and 0.2% after inflation, with inflation calculated conservatively in “chained” 2012 dollars. In February, Commerce reported last month that personal consumption rose 0.2%, but on Friday it was revised upwards 0.6% (0.1% after inflation). We are a country where people spend more than they have, and that is reflected in the trade report. Disposable income, which has mostly fallen in recent months after inflation, fell 0.4% after inflation in March, even as consumer spending rose 0.2% after inflation.

What were we spending our money on? Mainly services, which took a hit during the height of the Covid outbreak because when you consume services (eating a meal out, say, or flying to Paris) you have to interact with potentially contagious humans . Spending on services only returned to pre-Covid levels in June 2021, and it has increased strongly since, led in March by international travel (as anyone who has recently purchased an international plane ticket may have noticed).

Spending on the purchase of manufactured goods is a more complicated story. Spending on “durable goods” like automobiles fell due to ongoing overseas supply chain issues. But spending on “non-durable” goods like gasoline has increased, largely because of Putin’s war in Ukraine. Consumer spending on gasoline has increased nearly 18% since Januarya period during which the price of gasoline has increased about 27 percent. This is what economists mean when they call the demand for a certain product “inelastic”. When gas prices go up, you may be able to cut back on your driving a bit, but you’ll mostly end up paying through the nose.

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