Our economy, as measured by Gross Domestic Product, fell by 1.4% in the first quarter of this year. Though we’re technically not in a recession until there’s negative growth for two consecutive quarters, this is obviously not a good sign.
The decline was a sharp reversal to the 6.9% growth recorded in the 4th quarter of 2021. This drop in output was created by several factors.
A Widening Trade Deficit
Imports rose and exports fell as our supply chain problems continued to cause havoc.
Less Government Stimulus
The absence of government money to drive the economy certainly had a negative effect.
Business Inventories Were Lessened
Inventory levels in many businesses were extremely high in the fourth quarter of last year, leading to a reduction in spending in the first quarter.
Overall consumer and business spending was reasonably solid. This factor is leading many economists to predict that our economy will rebound quickly.
Let me leave you with this.
I’m not so certain.
Our overall economy is a lot like a small business in a few respects. It has revenues, as represented by taxation and expenses given its spending.
There are substantial differences when it comes to the government’s unending ability to borrow. Also, the government can print its own money.
But there are obvious limits in our economy as well. Out of control deficits, inflation, interest rates, and the overall business outlook can either slow or stop consumers and businesses from driving the economy by spending money.
If inflation is eating into a consumer’s budget, they won’t buy a new car. They’ll hang onto the rust bucket they have and drive it till the wheels fall off.
If they aren’t confident in their ability to hang onto a job because they’re worried about future layoffs, they won’t go on that dream vacation they’ve been planning. A waterpark in the Wisconsin Dells will be their destination for yet another year.
If they want to buy a new house given their growing family but can’t afford one given the rise in interest rates, they’ll stay where they are. A dollar only stretches so far.
If businesses are worried about their revenues in the next few quarters given a looming recession, they won’t buy that new machine. The old one will do just fine for now.
What does all of that add up to? A full blown recession.
I’m hoping and praying that the first quarter was just a blip. But the American economy is also like an eight hundred pound gorilla. Once it gets moving in one direction, it takes an awful lot of force to move it in the other.
Be careful. Make your plans.
We’re all going to get through this. Let’s get through it together.
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