![]() Q2, however, is moving more in the recessionary direction with weakness in final demand, led by residential investment. That doesn’t really add up to a very recessionary quarter even though real GDP fell. On the downside was total government spending, which fell 2.9%. Capital spending rose 10.0% (saar) to a record high, led by a 14.1% increase in spending on equipment (with information processing up 24.7%, industrial up 13.0%, but transportation down 7.9%). Real final sales to domestic purchasers rose 2.0% (saar) during the quarter, led by a 1.8% increase in real consumer spending, with outlays on goods and services down 0.3% and up 3.0%, respectively. Most of Q1’s weakness was attributable to an unusually large widening of the goods and services trade deficit ( Fig. That’s somewhere in between a soft and hard landing. In our current forecast, the y/y growth rate in real GDP bottoms at -1.9% during Q4 of this year. ![]() During severe recessions, it falls well below zero. During mild recessions, this growth rate tends to fall to zero. Q1’s real GDP was revised down slightly to -1.6% (saar) by the Bureau of Economic Analysis on Wednesday, but it was still up 3.5% y/y ( Fig. It is down from 17.9% at the start of this year to -75.8% on Friday.īefore Joe and I discuss the implications for the stock market of our revised economic outlook, let’s review the past week’s batch of recessionary data that caused us to lower our estimates for real GDP for the rest of this year: Its weakness in recent days confirms the recession scenario and the recent top in the yield (at 3.49% on June 14), as does the Citibank Economic Surprise Index ( Fig. Actually, the ratio is now more consistent with a bond yield closer to 2.00%. This outlook supports our view that the 10-year US Treasury bond yield should stabilize for a while around 3.00%, a view confirmed recently by the ratio of the nearby futures prices of copper to gold ( Fig. In any event, two more rate hikes should conclude the Fed’s current monetary policy tightening cycle for a while. Melissa and I are still anticipating that the FOMC will increase the federal funds rate on July 27 by 75bps and again on September 21 by that amount (or now possibly less). We see the headline PCED inflation rate falling from 6.3% y/y during May to 4.0%-5.0% during H2-2022 and to 3.0%-4.0% during 2023 ( Fig. So we aren’t revising our inflation forecast. The good news is that under this scenario of weaker economic growth, there’s a greater likelihood that inflation will decline during the second half of this year and in 2023, as we’ve been projecting. Next year, we expect growth to resume, with a 2.9% increase projected. So it is likely to be a relatively mild and short one but a recession nonetheless. Debbie and I are lowering our forecast for real GDP growth from 1.1% this year to -1.9%, based on the Q4/Q4 percent change ( Fig. Replays of the weekly webinars are available here. You will receive an email with the link to the webinar one hour before showtime. We’re doing so now, lowering our earnings estimates for S&P 500 companies this year and next. … Analysts will be getting the recession memo shortly and cutting their estimates accordingly. The sooner the business cycle bottoms, the sooner the stock market will. … The good news: The recession should be over next year and should slow the rate of inflation in H2-20. We now see real GDP contracting by 1.9% this year. Check out the accompanying pdf and chart collection.Įxecutive Summary: The US economy is probably heading into a mild recession, recent indicators suggest.
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