GDPNow data from the Atlanta Fed, chart by Mish
Please note another GDPNow Model plunge following a miserable ISM number.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is -2.1 percent on July 1, down from -1.0 percent on June 30. After this morning's Manufacturing ISM Report On Business from the Institute for Supply Management and the construction report from the US Census Bureau, the nowcasts of second-quarter real personal consumption expenditures growth and real gross private domestic investment growth decreased from 1.7 percent and -13.2 percent, respectively, to 0.8 percent and -15.2 percent, respectively.
Once again, the number to watch is not the headline -2.1 percent forecast. Rather, it's Real Final Sales (RFS).
RFS plunged a whopping 1.2 percentage points today to a barely positive 0.3 percent.
The Odds of Recession Starting in the "First" Quarter of 2022 Just Leaped
On June 29, I commented The Odds of Recession Starting in the "First" Quarter of 2022 Just Leaped
I made that call following a BEA revision on Wednesday to first-quarter GDP.
The BEA's final forecast for the quarter went to -1.6 percent from an initial -1.4%.
That's not the basis of my claim. Rather it was the huge revision from -0.6 percent to -1.2% in RFS.
Whoa! Massive Inventory Overhang
We have never seen a massive inventory overhang like this.
It's the result of fiscal and monetary stimulus on steroids. Merchants ordered far more goods than they could possibly sell.
It's that chart that explains the plunge in the baseline GDPNow forecast from +0.7 percent to -2.1 percent.
A strong April retail sales report kept RFS in positive territory.
We have already seen revisions to retail sales, personal incomes and outlays, and Q1 GDP.
This is what happens in recessions. Data revisions beget data revisions.
Yesterday I commented
Looking ahead, I expect more weak numbers and more negative revisions. The second quarter ended today, But the data lags. We have a key ISM number next week, another retail sales report, more housing reports, and another personal income and outlays report.
Look at the trend folks. Where is it headed? And there is still a month's worth of data coming in.
The ISM report was not next week, it was today.
Where's the data headed? You saw today.
To repeat: The quarter is over but the data lags. We still have more housing reports, another retail sales report, and another personal income and outlays report, and another ISM report.
I ask the same question today. Look at the trend folks. Where is it headed?
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Beating the Recession Drum
I have been beating the recession drum for quite some time.
- January 28, 2022: With Nearly Everyone Looking the Other Way, It's Time to Discuss Recession
- February 11, 2022: Steep Plunge in Yield Curve Spreads, Inversions and a Recession Loom
- May 22, 2022: Is a Recession On the Way or Has it Already Started? Ignore Janet Yellen's soft landing thesis. There are only two realistic choices.
- June 2: Expect a Deep Recession to Start This Quarter or Early Third Quarter
- June 12: Yield Curve Inversions Return, Signaling Another Recession Warning
- June 22: I've Seen Enough, the US is in Recession Now, QA on Why
- June 23: Powell Pledges to Beat Inflation Even If it Causes Recession and Job Losses
One reader commented on June 2: "I have been hoping for a recession soon. Now that Mish is calling for one I'm dropping that hope."
Another commented "Yes , the economy created 390000 jobs in May. That is not a sign of recession. The economy will slow down from 5.40 % , but no recession in the horizon."
I have a bucket of those.
Joke of the Day
Former US Treasury Secretary @lhsummers says: “Risks of a 2022 recession are significantly higher than I would have judged six or nine weeks ago.”
Gee how observant!
What a Hoot!
Note that not a single Fed member projected a recession.
On June 22, I commented I've Seen Enough, the US is in Recession Now, QA on Why
I'm tired of this nonsense that a recession might be coming. It's here already.
Stock Market Reversal Today
Q: The stock market reversed higher today, why? A: Silly belief that Powell will stop fighting inflation.
Although I believe rates will not get as high as most thought, it's not going to deter Powell from hiking further, enough to crush wealth effect demand.
Powell: "We understand better how little we understand about inflation”
Please see Powell: "We understand better how little we understand about inflation”
- Bloomberg Moderator to Powell: Paul Krugman said on Friday that the number one risk is the Fed could overdo it. Is that really possible?
- Powell: “Is there a risk we would go too far? Certainly there’s a risk. The bigger mistake to make, let’s put it that way, would be to fail to restore price stability.”
The Fed is on a path to crush demand and it will. Fear of another round of inflation will keep the Fed from returning to massive easing. Earnings will take an enormous hit and that is not priced in.
Take your rebound hope and toss it out the window. A Fed rescue is a long ways off.
This post originated at MishTalk.Com.
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