US Economy Shrinks Unexpectedly, Amplifying Recession Fears

Headline GDP shrank 1.4%, data by the Bureau of Economic Analysis showed Thursday. Analysts were expecting a 1% increase.

Apr 28, 2022 at 5:09 p.m. UTC
Updated Apr 28, 2022 at 8:14 p.m. UTC

Helene is a U.S. markets reporter at CoinDesk, covering US economics, the Fed, and bitcoin. She is a recent graduate of New York University's business and economic reporting program.

The U.S. economy contracted for the first time since the pandemic, a government report showed Thursday.

While analysts expected gross domestic product (GDP) to grow by 1% in the first quarter of 2022, it declined by 1.4% instead, according to the report released by the Bureau of Economic Analysis.

Because cryptocurrency prices have recently started to move in correlation with equity markets, a slowdown in economic growth, which might signal an upcoming recession, could affect digital assets including bitcoin (BTC).

Bitcoin and the broader cryptocurrency market didn’t move much after the report was released.

“The lack of an overreaction in markets reflects the underlying details of the report not being as bad as the headline suggests,” Danielle Booth, CEO of Quill Intelligence, a Dallas, Texas-based economic intelligence firm.

The key factors in the GDP decline were trade and inventories, whereas consumer spending and business investment remained strong – suggesting that the recovery from the pandemic remained solid.

'Closer to a decision'

Looking at the final quarter of 2021 and the first quarter of this year combined, the average economic growth is 2.8%, which is “still a respectable rate of economic growth," Ken Kim, U.S. senior economist at KPMG, wrote in a note.

“Today’s numbers suggest that we are likely closer to a recession than previously thought,” said Joe Haggenmiller, head of markets at XBTO, a crypto finance firm. “It therefore stands to reason that if negative growth persists, the equity markets may suffer and bitcoin may as well because of its positive correlation.”

Many economists aren’t worried about the latest numbers because while headline GDP was negative, the underlying components, such as consumption, fixed investment and demand, remained strong. The commonly used definition of a recession is a decline in economic activity over two consecutive quarters, so it remains to be seen if this first quarter of the year is worrisome or not.

Some major banks, including Deutsche Bank and Bank of America, say the U.S. economy could fall into a recession as soon as 2023.

“Momentum headed into the second quarter is not robust enough to suggest this negative print was a 'one and done,'” Booth said.


Read more about
The Festival for the Decentralized World
Thursday - Sunday, June 9-12, 2022
Austin, Texas
Save a Seat Now

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Helene is a U.S. markets reporter at CoinDesk, covering US economics, the Fed, and bitcoin. She is a recent graduate of New York University's business and economic reporting program.

CoinDesk - Unknown

Helene is a U.S. markets reporter at CoinDesk, covering US economics, the Fed, and bitcoin. She is a recent graduate of New York University's business and economic reporting program.

Trending

1
CoinDesk - Unknown
We Need to Talk About Exchanges That Sell You Coins Like UST

How much responsibility should they have, legally and morally, for projects that fail spectacularly?

How much responsibility should they have, legally and morally, for projects that fail spectacularly?

CoinDesk - Unknown
2
CoinDesk - Unknown
Terra lanzaría su nueva blockchain el sábado, seguida del airdrop de LUNA

Serán las primeras acciones de un plan más amplio para ayudar a revivir el ecosistema Terra y sus tokens.

Serán las primeras acciones de un plan más amplio para ayudar a revivir el ecosistema Terra y sus tokens.

CoinDesk - Unknown
3
CoinDesk - Unknown
The Quantum Revolution That Will Change Everything

Blockchains need to start migrating to new quantum-proof systems now otherwise they’ll be rendered worthless.

Blockchains need to start migrating to new quantum-proof systems now otherwise they’ll be rendered worthless.

CoinDesk - Unknown
4
CoinDesk - Unknown
Tether Expands With Introduction of Dollar-Pegged Stablecoin on Polygon

Tether is now available on over 11 blockchain networks.

Tether is now available on over 11 blockchain networks.

CoinDesk - Unknown