A widely followed Federal Reserve indicator indicates the U.S. economy. The Fed’s GDP tracker shows the economy could be on the brink of a recession. The U.S. economy heading for a second consecutive quarter of negative growth, meeting a general definition of a recession.
In recent updates, the Atlanta Fed’s GDPNow tracker now points to an annualized gain of 0.9% for the second quarter.
GDPNow tracks economic data in real-time and uses it to project the way the economy heads. Tuesday’s data, combined with other recent releases, resulted in the model downgrading. It concludes what had been an estimate of 1.3% growth. Which from June 1 to the new outlook of a 0.9% gain.
There are some responsible for 70% of gross domestic product. Those responsible are Personal consumption expenditures, and measures of consumer spending. It saw a cut to a gain of 3.7% from an earlier estimate of 4.4%. Besides, real gross domestic private investment is now expected to reduce growth by 8.5%, from 8.3% before.
At the same time, an improvement in the trade outlook resulted in a slight boost in the estimate.
Trade with Global Partners
The U.S. trade deficit with its global partners. Trade dropped to $87.1 billion in April, still a large number by historical standards. It is more than $20 billion less than the March record. Trade expects to subtract 0.13 percentage points from GDP in the second quarter. Which is from an earlier estimate of -0.25 percentage points, according to the Atlanta Federal.
Recession talks have accelerated this year amid rising inflation. This acceleration has dampened the outlook for corporate profits. Many on Wall Street still expect a combination of resilience. Resilience, in consumer spending and job growth, to keep America out of recession.
“Right now, it seems like any conversation about a recession is a story of 2023. It’s not this year,” said Joseph Brusuelas, chief economist at consultancy RSM. “We would need to see future shocks in the business cycle. I sense that the economy is going to slow down. But only back to its long-term trend growth rate of 1.8%.”
To be sure, while the notion of two consecutive negative quarters of GDP is often considered a recession, that’s not enough true.
National Bureau of Economic Research
The NBER (the official arbiter of recessions), says the general rule is often true, but not always. For example, the 2020 recession saw only one-quarter of negative growth.
Instead, the NBER defines a recession as “a significant decline in economic activity. A decline that spans the entire economy and lasts for more than a few months.”
“Most of the recessions identified by procedures consist of two or more consecutive quarters of real GDP decline, says NBER. “There are several reasons. First, we do not identify economic activity solely with real GDP but consider several indicators. Second, we consider the depth of the decline in economic activity.”
However, there has never been a period with consecutive quarters of negative growth. Negative growth that did not involve a recession, according to data dating back to 1947.
“It’s not going to be easy. And it may well depend, of course, on events that are not under our control. But our job is to use our tools to try to achieve that outcome, and that’s what we’re going to do,” Powell said.
Earlier on Tuesday, Treasury Secretary Janet Yellen told a Senate panel that “reducing inflation should be our No. 1 priority” and noted. That attempts to reduce the cost of living come “from a position of strength” in the economy.
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