Even Worse: Economy Shrank 1.6% as Inflation Battered Consumers in First Quarter

The U.S. economy shrank at a 1.6 percent annual pace, the government said Wednesday, as inflation weighed on consumer spending.

This is the government’s third and final estimate of the path the economy took in the first three months of the year. The government’s first estimate had the economy shrinking 1.4 percent and the second estimate was a contraction of 1.5 percent. This was the first time the economy registered a negative rate of growth since early in 2020 when the pandemic and lockdowns took hold.

Consumer spending—the chief engine of economic growth—was much weaker than previously thought, suggesting that inflation was already weighing down the economy and raising the risks of a recession. Consumer spending was revised down from an estimated 3.1 increase to smaller increase of 1.8 percent.