WASHINGTON — President Biden’s upbeat message that the economy is cruising along hit a troublesome speed bump on Thursday when the federal government reported that U.S. gross domestic product shrank during the first three months of 2022.

Economic activity declined at an annual rate of 1.4 percent, a sharp reversal from last year when growth was the strongest since 1984. There were technical reasons for the decline that likely obscured the actual health of the economy, yet the drop clearly put the president on the defensive after he has said repeatedly that the booming job market means the U.S. can withstand inflation at a 40-year high.


President Biden speaks as he meets with small business owners complex in the South Court Auditorium on the White House in Washington. Susan Walsh/Associated Press

Biden’s $1.9 trillion coronavirus relief package was supposed to propel the economy to new heights that Democrats could then sell to voters in this year’s midterm elections. But the muddled data has weakened the clarity of Biden’s pitch and emboldened Republican criticism.

The president told reporters at the White House that the consumer spending and business investment portions of the GDP report were solid, evidence that growth should resume in the months to come. The biggest drag on GDP was an increase in imports, but a one-off glitch – a sharp drop in business inventories – was a key contributor to the overall drop. The inventory decline reflected the aftershocks of the pandemic, rather than the underlying health of the economy, the president said.

“What you’re seeing is enormous growth in the country that was affected by everything from COVID and the COVID blockages that occurred along the way,” Biden said.

While the president maintained that there would not be a recession this year, he conceded that it was a concern.


“You’re always worried about a recession,” he said.

To Republican lawmakers and some economists, the drop in GDP hinted at the risk posed by surging inflation. Consumers have grown skittish despite increases in their net worth. Russia’s invasion of Ukraine has created the risk of oil, natural gas and food shortages. Pandemic-related lockdowns in China indicate that supplies chains troubles will persist.

Following last year’s coronavirus relief package, the government is now trying to calm the economy. There is less fiscal support as the federal deficit will likely be lower this year. At the same time, the Federal Reserve is trying to raise benchmark interest rates to reduce inflation without causing a downturn.

But Thursday’s report gave Republican lawmakers a direct line of attack.

“Under President Biden’s leadership, our economy is actually shrinking,” Texas Rep. Kevin Brady said at the start of a House Ways & Means Committee hearing on Thursday. “The president has missed four of the five quarterly economic projections. So Americans ought to brace for slower job growth and higher prices ahead.”

What the GDP report actually reveals about the months ahead may be more complicated. Some economists see the consumer spending and business investment as signs of a quick rebound, while others fear that consumer spending could weaken because of high prices and the efforts to reduce inflation.


“Underlying demand remains strong, and the labor market is in excellent shape,” said Gus Faucher, chief economist of PNC Financial Services. “Growth will resume in the second quarter.”

But Joe Brusuelas, chief economist at the consultancy RSM, said that the strengths observed by others could fade as policymakers tackle inflation because sustained economic growth depends on having stable prices.

“The price of oil and gasoline and food are all increasing faster than your paycheck,” Brusuelas said. “Therefore, we need to slow down the economy and demand with it, and that likely means slower growth and a slightly higher level of unemployment over the next two years. And it will be done with intent and purposefully. The problem is we could cause a recession in the process.”

One senior White House official said the various disruptions of the past two years have hurt the reliability of traditional economic indicators, masking what the administration sees as a solid economy.

The official, who insisted on anonymity to discuss the GDP report, said the key to overcoming this challenge will be to get the American people to focus on the bigger picture instead of monthly and quarterly reports.

On Thursday afternoon, Biden tried to pull attention back to that bigger picture by inviting small business owners to the White House. He noted that Americans have emerged from the pandemic as more entrepreneurial with 5.4 million applying last year to start new businesses. That’s 20 percent higher than any other year on record.

“We have every indication that this trend is going to continue,” Biden said, putting the morning’s GDP report behind him. “The reason for that is because we’re giving people financial security to take a risk and pursue their small business dreams.”

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