Dismal GDP Report Raises the Odds of a Recession This Year
Bloated inventories held the economy back in the first quarter and will take many months and discounting to shrink.
Get ready for the markdowns.
Photographer: Scott Barbour/Getty Images EuropeThe weakness in the economy spawned in part by the liquidation of bloated inventories has only just begun. The Commerce Department’s preliminary estimate of first-quarter growth Thursday showed that gross domestic product unexpectedly shrank at an annualized rate of 1.4%. Of that, 0.84 percentage point was due to a reduction in business holdings of goods.
None of this should be a surprise. As far back as December, there were signs that a build-up of excess inventories in the last half of 2021 would lead to a cut in production and orders after American businesses stockpiled goods in anticipation of robust holiday sales that ended up being rather tepid. Of the 2.3% growth in the third quarter of 2021, 2.2 percentage points was due to inventory-building and 5.3 percentage points of the fourth quarter’s 6.9% gain.