US economy shrank by 1.4% in Q1 but consumers kept spending

WASHINGTON (AP) — The U.S. economy shrank last quarter for the first time since the pandemic recession struck two years ago, contracting at a 1.4% annual rate, but consumers and businesses kept spending in a sign of underlying resilience.

The steady spending suggested that the economy could keep expanding this year even though the Federal Reserve plans to raise rates aggressively to fight the inflation surge. The first quarter's growth was hampered mainly by a slower restocking of goods in stores and warehouses and by a sharp drop in exports.

The Commerce Department's estimate Thursday of the first quarter's gross domestic product — the nation's total output of goods and services — fell far below the 6.9% annual growth in the fourth quarter of 2021. And for 2021 as a whole, the economy grew 5.7%, the highest calendar-year expansion since 1984.

The economy is facing pressures that have heightened worries about its fundamental health and raised concerns about a possible recession. Inflation is squeezing households as gas and food prices spike, borrowing costs mount and the global economy is rattled by Russia's invasion of Ukraine and China's COVID lockdowns.

Still, the U.S. job market — the most important pillar of the economy — remains robust. And in the January-March quarter, businesses and consumers increased their spending at a 3.7% annual rate after adjusting for inflation.

Economists consider that trend a better gauge than overall GDP of the economy’s underlying strength. Most analysts expect the steady pace of spending to sustain the economy’s growth, though the outlook remains highly uncertain.

Last quarter’s slowdown followed vigorous growth in the final quarter of 2021, driven by a surge in inventories as companies restocked in anticipation of holiday season...