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United States economic outlook: 2021 year-in-review and first quarter of 2022

11 July 2022|Briefing note

In 2021, economic growth in the United States was the strongest since 1984 (5.7%) but in the first quarter of 2022 the economy contracted. Here is the economic outlook in five charts:

  1. The United States GDP fell 1.5% in the first quarter of 2022, a sharp reversal from the 6.9% annual growth rate in the fourth quarter of 2021 (chart 1). The GDP decline in the first quarter stemmed from a widening trade deficit, with the increase in imports far outpacing the increase in exports. 
  2. The trade deficit narrowed to US$ 87.1 billion in April from US$ 107.7 billion in March, suggesting that trade may be less of a drag to GDP growth in the second quarter (chart 2). Imports declined, reflecting a moderating appetite for foreign goods from consumers and businesses. 
  3. The U.S. is experiencing a historically tight labor market, with May 2022 marking the 17th straight month of job gains. The unemployment rate was at 3.6%. 6.7 million new jobs were created in 2021, and 2.4 million from January to May 2022. Employment is on track to return to its pre-pandemic level in the second half of this year. Overall, as of May 2022, the economy is 0.8 million jobs below its pre-pandemic level (chart 3). 
  4. The Consumer Price Index (CPI) was above 8% in March, April and May 2022. While in April inflation edged down to 8.3% from 8.5% in March, in May it came higher than expected, increasing to a 40-year high of 8.6%, with energy and food prices soaring to new levels (chart 4). 
  5. In June, the Federal Reserve increased its benchmark interest rate by 0.75 percentage point, the largest increase since 1994. The Fed signaled it would continue lifting rates this year at the most rapid pace in decades. This was the third interest rate increase in 2022, following a quarter percentage point increase in March, and a half percentage point increase in May (chart 5). 
  6. With the Federal Reserve in the process of raising interest rates at the most aggressive pace since the 1980s, recession risks are rising. Rising prices and the monetary policy response add uncertainty to the United States economic outlook.

For a complete and detailed analysis see the PDF attachment with the full document.