What to Make of Q1-2022 GDP?

A 1.4% GDP contraction in the midst of a post-pandemic productivity-led boom. In January and February, as much as 7.5 million were out sick from Omicron, so some weakness is expectable. BEA points to the discontinuation of transfer payments, yet personal incomes rose sharply – after the prior quarter’s stagnation – on the back of employee compensation. Personal spending growth was robust, the best in three quarters. Change in inventories fell, despite the rise of the absolute level of inventories to above the pre-pandemic trend for the first time. Falling exports of goods was the single largest issue. Housing growth was small, but better than the prior quarter’s small contraction. PCE inflation rose sharply, which sets next week’s FOMC to deal with the specter of stagflation. The 50 bp rate hike is a sure thing, but this will likely cool the rhetoric, which would be a positive surprise.