Looking forward, rapid inflation and dwindling fiscal support point to more moderate growth in outlays for the remainder of the year. Furthermore, higher interest rates may at some point prompt companies to trim capital expenditures budgets.
Other potential headwinds for the U.S. economy include knock-on effects from Russia’s war in Ukraine that include deteriorating growth prospects in Europe, raw-materials shortages and persistent supply-chain hiccups. Trade flows are also at risk from the Chinese government’s severe pandemic-related lockdown measures that have stymied activity at some of the nation’s ports.
How Executives See It
“We remain very confident that the fundamental strength of consumer demand trends will remain intact over multiple years.” -- Whirlpool Corp. CFO James Peters, April 26 earnings call
“If anything, discretionary spending, especially from affluent consumers and credit cardholders, has been going up quite healthily. So in general, there isn’t any evident impact on inflation.” -- Visa Inc. CFO Vasant Prabhu, April 26 earnings call
“North American dealer inventory remains at record lows with healthy demand further constrained by the persistent global supply chain headwinds, limiting any improvement inventory levels,” -- Polaris Inc. CEO Michael Speetzen, April 26 earnings call
“While the current environment remains difficult to predict, I expect that as 2022 progresses, we will begin to experience an easing supply chain disruptions, general inventory rebuilding across many end-use markets and still a healthy consumer willing to spend, especially in North America.” -- PPG Industries Inc. CEO Michael McGarry, April 22 earnings call
Last quarter, inflation-adjusted business investment increased an annualized 9.2%, the firmest in a year and reflecting stronger equipment spending and intellectual property, according to the GDP report.
Residential investment rose at a 2.1% pace, as builders began making some headway on backlogged projects. While underlying housing demand remains strong, a rapid rise in mortgage rates and record-high home prices are weighing on affordability and could begin weighing on homebuilding later this year.
The report showed trade subtracted 3.2 percentage points from GDP in the first quarter, reflecting a surge in imports and a drop in exports. The U.S. economy has recovered more quickly from than pandemic than many countries abroad, bolstering demand for foreign-made goods.
The change in inventories subtracted 0.84 percentage point from the headline figure during the January-March period. In the fourth quarter, they added a whopping 5.3 points. Looking ahead, businesses will continue to replenish their inventories in an effort to restock following the robust merchandise demand seen in 2021.