A lot of people are worried that a recession may be in our future. Some think it may already be here.
Unemployment is low (3.6 percent), and inflation is high (9.1 percent). Both tend to occur when an economy is experiencing strong growth. That makes it difficult to believe the United States is in a recession, but some data is pointing that way.
Last week, the Atlanta Federal Reserve’s GDPNow estimated that economic growth in the United States was -1.6 percent for the second quarter of 2022, after adjusting for inflation. They measured economic growth using gross domestic product or GDP, which is the value of all goods and services produced in the United States over a specific period of time. GDPNow is based on a simple, unadjusted mathematical model. It is not an official reading, and the model tends to be a bit volatile. For example:
The Atlanta Fed’s estimate becomes more accurate as more data is added. It tends to be most accurate near the Bureau of Economic Analysis (BES)’s official GDP release date, reported a source cited by Jeff Cox of CNBC.
Since the United States economy shrank by 1.6 percent in the first quarter of 2022, that would mean the U.S. has experienced two quarters of declining economic growth. Technically, that’s a recession.
Not everyone expects GDP to shrink. Bloomberg surveyed economists and found they anticipate 0.5 percent growth in the second quarter, which would be an improvement on the first quarter.
There is an important distinction between the two quarters. The slowdown in the first quarter was caused by surging imports and slowing exports, which is unusual. The slowdown in the second quarter may be caused by a slowdown in consumer spending, which is the primary driver of U.S. economic growth, and business spending. Of course, one of the obvious realities is that when it costs upwards of $100 or more to fill our tank with gas, combined with increased prices of food, energy, and other necessary consumables, people will have less money to spend on some common disposable items, and will naturally slow their spending as a result. Sometimes just whispering the word recession is all it takes to cause people to think twice about buying something, and it can have a rippling effect.
The next BEA’s GDP numbers will be released this Thursday, July 28. Keep in mind that Bull Markets outnumber Bear Markets, and economic recessions do not happen often. But, many times, when economists start talking about actually being in a recession, they are looking at numbers in the rear-view mirror – meaning we are likely already in the middle of it, and may already be on our way out of it.
Last week, Randall Forsyth of Barron’s reported that major U.S. stock indices gained. Yields on shorter maturity Treasuries rose last week, while yields on Treasuries with maturities of one year or longer fell
THE CHALLENGES OF DATING. As if the pandemic didn’t create enough dating challenges, inflation is now pushing the cost of dating a lot higher. Instead of meeting for drinks (the cost of alcoholic beverages was up 4 percent year-over-year in June) or sharing a meal in a restaurant (the cost of full-service dining was up 8.9 percent year-over-year in June) many people are opting for less expensive options, such as meeting for coffee, taking a walk, or cooking a meal at home. The bit of good news is that the price of gas is dropping so the cost of dating should, too.
Weekly Focus – Think About It
“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice.”
—Adam Smith, economist and philosopher
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https://www.atlantafed.org/cqer/research/gdpnow (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/07-25-22_GDP%20Now_3.pdf [Choose GDPNow Model Data and Historical Forecasts in the right-hand column for historical data. May 17 data is below the chart under maximum estimate.]
https://www.bloomberg.com/news/articles/2022-07-23/us-growth-is-looking-sickly-as-fed-keeps-hiking-rates-eco-week (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/07-25-22_Bloomberg_US%20Growth%20is%20Looking%20SIckly%20as%20Fed%20Keeps%20Hiking%20Rates_7.pdf)
https://www.barrons.com/articles/the-stock-market-is-entering-its-weakest-months-what-to-watch-out-for-51658535766?mod=hp_LEAD_2 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/07-25-22_Barrons_The%20Stock%20Market%20is%20Entering%20its%20Weakest%20Months_9.pdf)
https://www.bloomberg.com/news/articles/2022-07-21/cheap-dates-how-inflation-is-making-it-more-expensive-to-find-love? (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/07-25-22_Bloomberg_Its%20Not%20You%2c%20Its%20Inflation_11.pdf)