The US economy is expected to post its worst quarter in two years

new York
CNN business
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Investors are bracing for bad economic news, with the latest GDP data expected to show US economic growth slumped to 1.1% in the first three months of the year.

US economic activity as measured by gross domestic product is expected to have grown by just 1.1% annualized in the first quarter of the year, according to Refinitiv consensus expectations. The Federal Reserve Bank of Atlanta’s GDPNow model forecast a seasonally adjusted annualized growth rate of just 0.4% on Wednesday — down from 1.3% in mid-April.

If either forecast proves correct, it would be a steep decline from the 6.9% pace of growth seen in the last quarter of 2021, making it the worst three-month period since the pandemic recession in Q2 2020.

Economists had predicted growth would eventually slow from the grand reopening. But even compared to pre-pandemic times, when the US economy was growing steadily at a more moderate pace, something as little as 1% would be disappointing.

How did this happen?

For one thing, companies built up inventories in the last three months of last year, which boosted economic activity. However, according to economists from Action Economics, this expired in the first quarter of 2022.

The quarter also began with the omicron wave of the coronavirus, rising infections and renewed restrictions to contain the virus. While the effects were short-lived, the longer-term effects are only now becoming apparent.

Americans also had to fear rising prices, not to mention Russia’s invasion of Ukraine, which pushed up gas prices. In March, retail sales data from the Census Bureau showed that total sales were boosted only by spending at gas stations, where sales rose nearly 9%.

It emphasizes an important point: So far, US consumers are still spending generously, but much of this seems to be due to pervasively higher prices rather than increased consumption.

Even as Americans still have pent-up savings from the pandemic’s lockdown days, inflation rates not seen in 40 years aren’t exactly tempting people to indulge in extravagant shopping sprees. Eventually, this reality will catch up with US economic growth, which requires healthy consumer spending.