That is Bank of America’s latest forecast for the growth of the U.S. economy in the second quarter. The second largest American bank by assets on Friday revised down its estimate for GDP growth in the April through June period from 1.5 percent to 0.0 percent, citing weaker than expected consumer spending reported by the Department of Commerce on Thursday.
“This was the first fall in consumer spending this year amid high inflation and hawkish hikes by the Fed, indicating a slightly weaker economy than previously assumed,” the bank’s economists said in a note to clients.
The Commerce Department’s Personal Consumption Expenditure data released for the first quarter and the month of May indicated that consumer spending has been more or less flat since January. Inflation-adjusted household earnings have fallen, with wage gains swamped by rising prices. PCE inflation, the Fed’s favored measure of price changes, remained at 6.3 percent in May, defying predictions that it would come down as the Fed imposed the biggest rate hike in this century.
The Institute of Supply Management said on Friday that its barometer of manufacturing activity fell to the lowest level since May 2020, when the economy was staggering from the onset of the pandemic and lockdowns.
The Atlanta Federal Reserves’ GDP tracker, GDP NOW on Friday plunged to minus 2.1 percent growth for the second quarter, down from the one percent reading on Thursday.
The continued erosion in economic data has prompted The Atlanta Fed to slash its forecast for Q2 GDP growth to -2.1% meaning the US is now technically in recession (after Q1’s confirmed 1.6% contraction yesterday).
The GDPNow model estimate for real GDP has collapsed in recent days, growth in the second quarter of 2022 has been cut to a contractionary -2.1%, down from -1.0% on June 30, down from 0.0% on June 15, down from +0.9% on June 6, down from 1.3% on June 1, and down from 1.9% on May 27.
As the AtlantaFed notes, “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.”
In short: the US consumer is getting tapped out, just as we have been warning repeatedly.
Which also fits with Jamie Dimon’s recent “downgrade” of the economy from “storm clouds” to “hurricane”… and also makes some sense given the recent collapse in macro data relative to expectations…
And longer-term, the trend towards stagflation could not be clearer…
The Atlanta Fed’s recession forecast coincides with JPMorgan’s economists cutting their US mid-year economic growth forecasts after an influx of weaker data this week – most notably a slowdown in consumer spending. The Wall Street bank reduced its estimate for annualized gross domestic product growth to 1% for the second quarter, down from 2.5% previously. This quarter is also seen at 1%, down from 2%. Growth will tick up to 1.5% in the final three months of the year, helped by stronger car production and lower inflation, the bank’s economists said.
“Our forecast comes perilously close to a recession,” Michael Feroli, JPMorgan’s chief US economist, wrote in a note Friday. “However, we continue to look for the economy to expand, in part because we think employers may be reluctant to shed workers, even in a period of soft product demand.”
This call comes a day after Nomura called for a Global Recession.
And now even Larry Summers believes there’s an increasing risk the looming recession he’s anticipated will start sooner, in 2022…
“The risks of a 2022 recession are significantly higher than I would have judged six or nine weeks ago,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin.
“If the economy did go into recession in the next six to nine months, then you’d probably see a reduction in inflationary pressures.”
“The risks of a 2022 recession are significantly higher than I would have judged six or nine weeks ago” – Larry Summers
once again, Cardi B > Larry Summers
— zerohedge (@zerohedge) July 1, 2022
This is increasingly problematic for The Fed, as the market is now betting Powell and his pals won’t get close to hiking as much as they hope…
All of which means The Fed is now hiking rates into a recession…