American economy shrinks

American economy shrinks

The U.S. economy shrank at a rate of 1.4% in the first quarter of 2022, reflecting a huge rise in America’s trade deficit. The trade deficit ballooned massively, due to mushrooming imports. Economists had predicted a 1% economic growth rate, rather than the decline in the economy that actually occurred.

Economists still expect the Federal Reserve to raise its interest rates by a half-percent next week. At the start of 2022, consumer spending surged as Covid-19 cases declined. As 2022 dragged on, high inflation began to shrink consumer purchasing power. In the future, rapid inflation may prevent more than moderate growth in the remainder of this year. Moreover, higher interest rates may induce firms to cut capital investment expenditures.

Growth may also decline due to Russia’s war in Ukraine, which will reduce demand for U.S. imports from America’s trading partners in in Europe, and result in raw-materials shortages and additional supply-chain problems. Trade may also be affected by the Chinese government’s severe pandemic-related lockdowns in key cities such as Shanghai that have stifled economic activity at some of China’s busiest ports.

Massive government spending by the Biden Administration has backfired and made America less competitive, by reducing America’s workforce and thus our economy’s overall output. Economists had expected that the U.S. economy would add over a million jobs in April 2021, because it had been growing rapidly since fall 2020 after bouncing back from the recession caused by the coronavirus. But instead, after Congress passed Biden’s $1.9 trillion “American Rescue Plan” in early March, employment grew by far less than expected in April, resulting in a shortfall of 700,000 jobs, due to work-disincentives contained in Biden’s plan.

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Biden’s so-called “rescue plan” was financed with borrowed money. That increased our country’s huge national debt, which was already bigger than our economy — as big as in nations that could not pay their debts during the European debt crisis.

LU Staff

LU Staff

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