The US economy probably barely grew in the last quarter and may have contracted

Shipping containers are seen in a terminal inside the Port of Oakland as the independent truck driver continues to protest California’s new law known as AB5, in Oakland, California on July 21, 2022.

Carlos Bari | Reuters

Economists predict the economy barely grew in the second quarter and some expect it to actually contract.

Estimates show that the economy may have grown by several tenths of a percentage point. Goldman Sachs expects a 1% rise, while Moody’s Economics sees a 1% decline.

The sluggish growth forecasts follow the decline of 1.6% in the first quarter. But there are many predictions for a shrinking economy, including the Atlanta Fed’s GDP Now tracker, which is down 1.2% for the second quarter.

That would make it the second consecutive negative GDP report, one of the signs that the economy is in recession. However, economists are careful to point out that the strong labor market and other factors make a recession unlikely for now. They also note that the National Bureau of Economic Research, the official arbiter of recession requests, is not expected to declare one now.

Fed Chairman Jerome Powell on Wednesday said he doesn’t believe the economy is in a recession.

“Let’s say it’s negative. The stock everywhere will be ‘recession’. That’s not how the markets think, but you’ll see people scream ‘recession’,” said Michael Schumacher, Wells Fargo’s head of macro strategy. “Then there will be a debate about it … It will be more important to the political types than to the market.”

Some economists raised their forecasts Wednesday, ahead of the second quarter report, after the monthly durable goods report came in better than expected and advanced trade data showed the trade gap narrowed significantly. Durable goods rose 1.9% in June after a lower 0.8% increase in May.

Goldman Sachs economists raised their gross domestic product forecast to 1% from 0.4% after the data.

Mark Zandi, chief economist at Moody’s Analytics, said he now has a negative forecast of 1%; prior to the data it was negative by 1.3%. But he also doesn’t believe that the negative number, when combined with the first quarter contraction, would signal a recession.

“I think it’s hard to see a recession when we’ve created so many jobs. There are record unoccupied positions,” he said, noting that job growth averaged around 500,000 per month. “It is not consistent with the idea that the economy is in a recession. It is every single sector and in every corner of the country that is experiencing robust employment growth. It is simply not a recession.”

The economy added 372,000 added jobs in June.

Zandi noted that negative growth numbers are likely to be revised upwards and that the causes of the contraction are not lasting. The slowdown may be partly linked to the impact of Covid on the economy, which has resulted in trapped supply chains and inventory problems.

“The weakness in the first quarter and second quarter of GDP mainly affects trade and inventories, and these are temporary factors of GDP,” he said. “They swing the number of GDP from quarter to quarter, but they are not persistent sources of growth or burdens on growth.”

Trade subtracted 3.2 percentage points from GDP in the first quarter, but should be a positive factor in the second quarter, Zandi added.

“We had quite a large inventory increase in the first quarter. … I think this is due to the disruptions in trade related to the pandemic and the timing of things,” he said. “Inventories increased significantly in the first quarter. … We will see some inventory build-up in the second quarter but not such a large increase in inventories. Therefore, this is a drag on GDP.”

JP Morgan economists raised their growth forecast from 0.7% to 1.4% after Wednesday’s economic releases.

“The most significant surprises were related to trade and inventories, as the June trade deficit was lower than expected and the June nominal inventory changes were above expectations,” JP Morgan economists wrote. in a note.

The nominal goods trade deficit narrowed to $ 98.2 billion in June from $ 104 billion in May, and exports increased by 2.5% as imports fell by 0.5%. The trade data is not complete, as it does not include services, but economists at JP Morgan said they now expect an improving trade deficit to mean more growth.

“We believe the data in hand strongly suggests that the real trade deficit narrowed significantly in Q2 [which we now think added 1.6%-pts to 2Q real GDP growth]”They noted.

Kevin Cummins, NatWest Markets’ US chief economist, said the trade data supports his view that the economy grew at a pace of 1.5% for the quarter.

“It’s not to say you can’t get negative press, but it’s less likely,” he said. Cummins also pointed out that two consecutive negative quarters don’t mean the economy is actually in a recession.

“If we get another negative quarter for the second quarter, they call it a technical recession,” Cummins said. “The problem is that it’s not how the NBER looks at things … They look at the monthly data. They will look at employment. They will look at personal income, consumption, industrial production, all the monthly data and decide if the economy is up. shrinking or expanding “.

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