- The U.S. economy contracted in Q1 2022. If the economy contracts again in Q2, the U.S. will be in a recession.
- The housing boom may be over. The sale of new and existing homes have fallen sharply and new home construction has increased by 25%.
- Food prices grew by 1.4% in May, an annualized increase of 18.7%.
- The savings rate went from an all-time high of 33.8% during the first months of the pandemic to a low of 4.4% in April of this year.
What the Fed says about the U.S. economy from the latest economic indicators.
Every month the New York Federal Reserve publishes a snapshot of the U.S. economy. It consists of a comprehensive overview of current economic and financial developments. Here are four insights from the Fed's latest economic snapshot.
1. GDP growth declines
GDP, which measures the total value of goods and services produced in the U.S., decreased by 1.5% in the first quarter of this year. This is a large reversal from the 6.9% growth we saw in the last quarter of 2021. The primary driver of negative GDP growth was due to America's growing trade deficit. Imports grew significantly but exports fell. An economy is often considered to be in a recession when there are two consecutive quarters of negative GDP growth. There is a lot riding on the Q2 numbers which will be released on July 28.
2. Home sales fall sharply
The housing boom may be over. Existing single-family homes sales fell in April, down 10% from Q4 2021. New single-family homes sales also fell, down 25% from Q4 2021 levels. In addition, single-family construction in Q1 was up 25% and multi-family construction jumped 23% compared to the previous quarter. With less demand, more supply, and mortgage rates almost double from the beginning of year, home prices may begin to stabilize.
3. Food prices continue to rise
While core inflation fell from 6.1% in April to 6% in May, food prices were up by 10% and energy prices by 30%. The increases in food prices were high across the board and no category was spared. Inflation for baked goods was at 11%, meat prices 12%, dairy prices 12%, and fruit and vegetable prices were up by 8%. Food prices according to the Fed reached "a very high level in May." Prices rose 1.4% for the month, indicating an annualized increase of 18.7%. With the conflict in Ukraine, which exports a significant amount of wheat, food prices may continue to rise.
4. Savings rate falls
Real disposable income, which is after-tax income, was down 6% over the year due to high inflation and higher tax payments. Personal spending is up 2.8% for the year. With lower income and higher spending, the personal saving rate fell from 7.9% in Q4 2021 to 5.6% in Q1 2022. The savings rate dipped even further to a low of 4.4%. During the onset of the pandemic, the savings rate reached an all-time high of close to 35%. Since then, Americans have been eating into their pandemic savings as income hasn't kept pace with high inflation.
The Fed's snapshot shows the economy is slowing down, the first time it has contracted since the pandemic. Other troubling signs are high inflation, especially with food and the savings rate hitting a low. While the housing boom may be over, due to higher mortgage rates, many Americans may still be priced out of the market.
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