Nobody freak out. Just flagging that the US economy did just shrink with icily-testicular speed during the first three months of 2022, contracting by -0.4% in the first quarter and -1.4% on an annualised rate.

Yes, it’s the weakest quarter since the pandemic, and while the word flaccid does leap to mind, the good news is many of the other handy bits of the US economy are functioning rather well.

Employers have added circa 600K of new jobs every month since October and the unemployment rate fell to 3.6% in March, close to its pre-Covid low.

And while the world’s real economic engine has certainly limped through the start of what’s been a sensationally crappy year so far, the last quarter of 2021 was also a corker – when US GDP soared by 1.7% or 6.9% annually.

The doyens at the US commerce dept chalk it all down to a rise in imports and a slide in private inventory investment, exports and that lovely government spending.

But they could’ve just settled for pointing at a stronger US dollar.

Keep your pants on

Consumer spending, the largest component of the US economy, grew 0.7% in the first quarter – a 2.7% annual rate – despite the impact of the Omicron wave of the coronavirus.

This is the American’s first contraction since Covid first smacked output back in the universe of Q2 2020.

Oscar Munoz, macro strategist at TD Securities, says on the plus side, consumer spending and fixed investment accelerated relative to the last quarter.

“This could be suggesting early signs of the normalisation in spending preferences amid the post-COVID reopening, and should aid supply chain normalisation (even as disruptions are likely to continue for some time),” Munoz reckons.

TD Securities was really expecting a better showing from those famously consumptive US consumers, but says revisions to monthly retail sales estimates gave a late whack to the final numbers.

The US, not as spendy as first thought. Via TD Securities

“As we had anticipated, GDP growth was impacted by large setbacks in net exports and inventories,” Munoz said. “In effect, both items together reduced headline growth by a whopping 4.0 pp.”

So, in summation, US GDP contracted, but the full package was actually much stiffer than at first glance.

Inflated concerns

Oscar says core PCE inflation should start to slow as well, with the year on year change in core PCE prices slipping to 4.1% by Q422.

“This supports our view of a rebound in Q2 output as inventory rebuilding normalises and imports become less of a drag amid still strong domestic demand.”

And speaking of drags… the gaggle of governors who also double as The Federal Reserve’s policy press gang are widely pegged to go with a half a percentage point bump at the exciting hoedown due Tuesday (I think) next week.

Awesome Chair Jerome Powell – overnight, talking price stability – promised everyone, everywhere that the bank is on the case and is totes committed to lifting the cash rate ‘expeditiously’ to get on top of this inflation nonsense as prices in the States rise at their fastest clip since the advent of Madonna and just back-up dancers as a whole thing.

Cleveland’s Fed Pres Loretta Mester said she’s also cool with raising rates by 50 basis points, even a few times if needed, but wouldn’t want to just go opening up the floodgates.

She tagged the next few meets – where they’ll be tearing at the walls of the Covid-era’s super-accommodative monetary settings – as ‘The Great Recalibration of Monetary Policy’.

Which is a pretty cool name, for a pretty easy gig.