After the Atlanta Fed reported yesterday that it had cut its Q2 GDP nowcast to 1.8% from 2.4%, meaning that we are just 1.8% away from a full-blown technical recession after last month we learned that Q1 GDP unexpectedly tumbled deep in the red…
On May 25, the #GDPNow model nowcast of real GDP growth in Q22022 is 1.8%. https://t.co/T7FoDdgYos #ATLFedResearch Download our EconomyNow app or go to our website for the latest GDPNow nowcast. https://t.co/NOSwMl7Jms pic.twitter.com/EOQVx4h2Wy
— Atlanta Fed (@AtlantaFed) May 25, 2022
… few were too excited about today's first revision of last month's dismal GDP print, and yet while such revisions are usually ignored by the market – after all the latest data looks at what happened in the distant Q1 – we find that the US economy slowed even more than expected, with Q1 GDP contracting -1.5%, up from the -1.4% initially reported, and missing estimates of a modest bounce to -1.3%.
The incremental contraction in GDP reflected downward revisions to inventory investment and housing investment that were partly offset by an upward revision to consumer spending, which rose 3.1% annualized in 1Q after rising 2.5% prior quarter. Specifically, here is how the various components were affected:
- Personal Consumption 2.09% of the bottom line GDP, up from +1.83% in the first estimate
- Fixed Investment 1.18% of the bottom line print, down from 1.27%
- Change in private inventories -1.09%, also down from -0.84% in the first estimate
- Exports improved modestly, rising to -0.62% from -0.68% in the initial estimate
- Imports however deteriorated to -2.61% from -2.53%, another deterioration
- Government contribution was flat at -0.47%, from -0.48% in the first estimate:
On the inflation front, the BEA calculated the GDP deflator at 8.1%, above the 8.0% expected, even as core PCE eased off a bit, from 5.2% in the original estimate to 5.1% currently, also below the 5.2% expected.
On the profit front, corporate profits from current production decreased 2.3% after increasing 0.7% at a quarterly rate in the fourth quarter. Profits of domestic nonfinancial corporations decreased 1.1% after increasing 0.3%. Profits of domestic financial corporations decreased 5.2% after decreasing 0.2% and profits from the rest of the world decreased 3.2% after increasing 3.3 percent. In short, a disaster.
Bottom line: the contraction in Q1 – which nobody expected – was even worse, and now that Q2 indicators are suddenly slumping, keep a close eye on Atlanta Fed and other real-time indicators for clues as to whether the US will slide into a technical recession (2 negative GDP quarters in a row) as soon as this quarter, which incidentally would make sense for Biden: rip the band aid off and get it over with, while allowing the Fed to inject stimmies just in time for the midterms, rather than dragging this on and on for the foreseeable future.