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Why this economy may be sturdier than it looks : NPR

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The U.S. financial system probably slowed sharply on this 12 months’s first quarter, however circumstances could also be sturdier than they appear as client spending stays wholesome. Right here, individuals loosen up in Sunny Isles Seaside, Fla., on March 8.

Chandan Khanna/AFP through Getty Pictures


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Chandan Khanna/AFP through Getty Pictures


The U.S. financial system probably slowed sharply on this 12 months’s first quarter, however circumstances could also be sturdier than they appear as client spending stays wholesome. Right here, individuals loosen up in Sunny Isles Seaside, Fla., on March 8.

Chandan Khanna/AFP through Getty Pictures

From inflation to the warfare in Ukraine, there appear to be loads of causes to fret concerning the financial system today, however issues are wanting fairly good for the busy Resort Haya in Tampa, Florida.

Even with gasoline costs topping $4 a gallon, persons are making the drive from neighboring states and flocking to the lodge.

“They have been saving their cash throughout the pandemic, and now they wish to get away, wherever it takes them,” says the lodge’s basic supervisor, Peter Wright.

That is probably not apparent from a brand new financial report card. The Commerce Department reported Thursday that the nation’s gross home product shrank at an annual charge of 1.4% within the first three months of this 12 months — a marked distinction from the ultimate months of 2021, which noticed some of the fastest growth in decades.

However economists say that is not as worrisome because it may appear. Customers proceed to spend freely, and companies are nonetheless investing, regardless of the sharp drop in headline GDP progress.

“We should always not take that as a sign of the course of the financial system,” says Ben Herzon, senior U.S. economist with S&P International Market Intelligence. He notes that GDP was dragged down by a drop in exports, inventories and authorities spending.

“If we peel again a few layers and simply have a look at underlying home demand, the financial system seems to be choosing up a bit of little bit of steam,” Herzon mentioned.

Take Tampa. Greater than three-quarters of the town’s lodge rooms had been booked in mid-April, surpassing pre-pandemic ranges, according to hospitality analysts at STR.

Sturdy demand has pushed the typical nationwide worth of a lodge room up greater than 14% from 2019.

“We see quite a lot of staycations as effectively,” Wright says. “There was quite a lot of pent-up demand, so we see quite a lot of native individuals coming for just a few nights and having fun with the restaurant and the pool. They’re seeking to spend cash.”

Folks stand in a safety line at John F. Kennedy Worldwide Airport in New York Metropolis on April 19.

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Folks stand in a safety line at John F. Kennedy Worldwide Airport in New York Metropolis on April 19.

Spencer Platt/Getty Pictures

“Purchase and purchase and purchase”

Whereas the omicron wave of coronavirus infections discouraged some individuals from touring and consuming out within the first weeks of the 12 months, that has given option to what Herzon calls a “COVID spring.”

“Persons are taking their masks off,” he says. “They’re getting again to consuming the companies they had been consuming earlier than the pandemic. That is a fairly highly effective push that may assist to propel client spending — and GDP broadly — greater into the second half of the 12 months.”

On the Tulip Pageant in Wamego, Kan., final weekend, Becky Rawls-Riley was showcasing a colourful assortment of customized hats and scarves she makes.

“All people’s again, which is nice,” she says.

Craft festivals are returning after a one- or two-year hiatus as a result of COVID-19 pandemic, and that is a reduction for Rawls-Riley, who is determined by the occasions for each gross sales and buyer suggestions.

Gross sales had been “gung-ho” in February, she says, however appeared a bit of softer in March and April.

“There are some who will purchase and purchase and purchase,” she says, whereas others are “watching their pennies.”

Fatboy Slim performs onstage on the Coachella Valley Music and Arts Pageant in Indio, Calif., on April 24. Festivals and different gatherings are coming again regardless of the lingering COVID-19 pandemic.

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Fatboy Slim performs onstage on the Coachella Valley Music and Arts Pageant in Indio, Calif., on April 24. Festivals and different gatherings are coming again regardless of the lingering COVID-19 pandemic.

Matt Winkelmeyer/Getty Pictures for Coachella

Not every little thing is rosy, in fact

That is to not say the financial system is with out challenges. Provide chains are nonetheless tangled, and employers are nonetheless struggling to seek out sufficient workers.

Rawls-Riley, for instance, invested in new show racks this 12 months, in addition to industrial stitching gear, however each had been delayed by provide chain bottlenecks.

“If you may make a product however you’ll be able to’t show it so somebody sees what you’ve, you are in hassle,” she says. She additionally elevated her costs to offset the rising prices of cotton, polyester and spandex, in addition to greater wages for her workers.

“You possibly can’t maintain your worth eternally,” she says. “It is simply not attainable.”

A survey of small-business owners by SCORE, a nonprofit business-mentoring service, discovered that two-thirds had been going through rising prices from distributors and suppliers and that greater than half had raised their very own costs, on common by about 11%.

At Resort Haya, Wright has additionally wrestled with rising bills and the problem of recruiting employees. Resorts and eating places have been including employees at a speedy clip in current months, however the trade nonetheless employs about 1.5 million fewer individuals than it did earlier than the pandemic.

“Lots of people left our trade for lots of causes,” Wright says. “We now have to be extra artistic than we have ever been up to now as a result of there’s such a scarcity within the hospitality trade.”

A consumer selects a potato at a grocery store in Rosemead, Calif., on April 21. Inflation stays a prime concern for the Federal Reserve.

Frederic J. Brown/AFP through Getty Pictures


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Frederic J. Brown/AFP through Getty Pictures


A consumer selects a potato at a grocery store in Rosemead, Calif., on April 21. Inflation stays a prime concern for the Federal Reserve.

Frederic J. Brown/AFP through Getty Pictures

Inflation continues to be a headache

With robust demand and a good labor market, the U.S. financial system is significantly hotter than Thursday’s GDP determine may counsel — too scorching, the truth is, for the Federal Reserve.

With annual inflation hitting a four-decade high final month, the central financial institution has begun raising interest rates in an effort to chill demand. The Fed is making an attempt to rein in costs with out tipping the financial system into recession.

“That is our aim,” Fed Chair Jerome Powell mentioned throughout a panel dialogue final week. “I do not suppose you will hear anybody on the Fed say that is going to be easy or straightforward.”

The Fed raised rates of interest by 1 / 4 share level in March, and it is anticipated to comply with that with a half-point enhance subsequent week. Greater borrowing prices are already weighing on the housing market, the place mortgage rates now exceed 5%.

Pandemic lockdowns in China might additionally gradual financial progress, probably dragging out cussed provide chain challenges and placing extra upward strain on inflation.

Economist Mark Zandi of Moody’s Analytics has lowered his forecast for GDP progress this 12 months to about 3% from the 4% he was projecting in January.

Nonetheless, he says the U.S. financial system has proved remarkably resilient to at least one problem after one other.

“There’s quite a lot of money sitting in individuals’s financial institution accounts, and that ought to assist them proceed to spend and navigate any sort of storm that is blowing by means of,” Zandi says. “And clearly the Russian invasion and the upper gasoline and meals costs and inflation is a storm.”

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