What the Fed says about the US economy based on the latest economic indicators.
- The US economy contracted in the first quarter of 2022. If the economy contracts again in the second quarter, the United States will be in recession.
- The real estate boom may be over. Sales of new and existing homes fell sharply and new home construction increased by 25%.
- Food prices rose 1.4% in May, an annualized increase of 18.7%.
- The savings rate fell from an all-time high of 33.8% in the early months of the pandemic to a low of 4.4% in April this year.
Each month, the New York Federal Reserve releases a snapshot of the US economy. It consists of a comprehensive overview of current economic and financial developments. Here are four insights from the Fed’s latest economic snapshot.
1. GDP growth is slowing
GDP, which measures the total value of goods and services produced in the United States, fell 1.5% in the first quarter of this year. This is a significant reversal from the 6.9% growth we experienced in the last quarter of 2021. The main driver of negative GDP growth was due to America’s growing trade deficit . Imports increased significantly, but exports fell. An economy is often considered to be in recession when there are two consecutive quarters of negative GDP growth. There’s a lot to be said about the Q2 numbers that will be released on July 28.
2. Home sales fall sharply
The real estate boom may be over. Sales of existing single-family homes fell in April, down 10% from the fourth quarter of 2021. Sales of new single-family homes also fell, down 25% from levels in the fourth quarter of 2021. In addition, single-family construction in Q1 increased 25% and multi-family construction jumped 23% from the previous quarter. With less demand, more supply and mortgage rates that have almost doubled since the start of the year, house prices could begin to stabilize.
3. Food prices continue to rise
While core inflation fell from 6.1% in April to 6% in May, food prices rose by 10% and energy prices by 30%. Food price increases were high across the board and no category was spared. Bakery inflation was 11%, meat prices 12%, dairy prices 12% and fruit and vegetable prices 8%. Food prices according to the Fed reached “a very high level in May”. Prices rose 1.4% for the month, indicating an annualized increase of 18.7%. With the conflict in Ukraine, which exports a significant amount of wheat, food prices could continue to rise.
4. The savings rate drops
Real disposable income, or after-tax income, fell 6% during the year due to high inflation and higher tax payments. Personal spending rose 2.8% for the year. With lower income and higher spending, the personal savings rate fell from 7.9% in the fourth quarter of 2021 to 5.6% in the first quarter of 2022. The savings rate fell further to a low of 4.4%. At the start of the pandemic, the savings rate hit an all-time high of nearly 35%. Since then, Americans have dipped into their pandemic savings as incomes have not kept pace with high inflation.
The Fed snapshot shows the economy slowing, the first time it has contracted since the pandemic. Other worrying signs are high inflation, especially with food and the savings rate at rock bottom. Although the housing boom may be over, due to rising mortgage rates, many Americans could still be squeezed out of the market.
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