US Economy Shrinks for a Second Quarter, Fueling Recession Fears
Comment of the Day

July 28 2022

Commentary by Eoin Treacy

US Economy Shrinks for a Second Quarter, Fueling Recession Fears

This article from Bloomberg may be of interest to subscribers. Here is a section:

The drumbeat of recession grew louder after the US economy shrank for a second straight quarter, as decades-high inflation undercut consumer spending and Federal Reserve interest-rate hikes stymied businesses and housing.

Gross domestic product fell at a 0.9% annualized rate after a 1.6% decline in the first three months of the year, the Commerce Department’s preliminary estimate showed Thursday. Personal consumption, the biggest part of the economy, rose at a 1% pace, a deceleration from the prior period.

“The more important point is that the economy has quickly lost steam in the face of four-decade high inflation, rapidly rising borrowing costs, and a general tightening in financial conditions,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note. “The economy is highly vulnerable to slipping into a recession.”

Eoin Treacy's view

It is always dangerous to say this time is different in markets. However, on this occasion there really is some justification that claim. Two consecutive quarters of negative growth meets the technical definition of a recession. However, there are some important mitigating circumstances. For one, unemployment has not risen significantly. There has also never been a recession when the PMI was among 50. That suggests muddier perspective than we might be accustomed to.

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