Is the US economy about to enter a contraction period? Well, Jen Psaki and Brandon continue to insist that everything is awesome, but the Atlanta Fed and other economic watchers have a far different perspective.
From their point of view, the economy isn’t in a healthy spot right now, with the variables trending in a highly negative direction and GDP likely following those negative variables.
In fact, the Atlanta Fed, in its January 2022 GDPNow forecast, had much lower expectations for how much the economy will grow than the more optimistic initial estimate predicted. In its words:
The initial GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2022 is 0.1 percent on January 28. The initial estimate of fourth-quarter real GDP growth released by the US Bureau of Economic Analysis on January 27 was 6.9 percent, 0.4 percentage points above the final GDPNow model nowcast released on January 26.
That estimate is far different, as you can see in this chart, also provided by the Atlanta Fed:
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And that 0.1% estimate has a margin of error. If the estimate is just a tad higher than reality, that means the US economy could very well contract in the first quarter.
According to the Atlanta Fed’s subcomponent contribution chart, the reason for the shockingly low 0.1% number is that private inventories decreased by a massive 2.25% with net exports also decreasing by 0.1%. Those decreases almost outweighed the small increases in investment, consumer spending, and government spending.
Yet worse, it’s not just some wayward Federal Reserve branch that’s worrying about a recession. The Bank of America, just slashed its economic growth prediction too, as ZeroHedge reports:
while not yet a recession, today Bank of America stunned market when it chief economist joined JPM in slashing his GDP for 2022, and especially for Q1 where his forecast has collapsed from 4.0% previously to just 1.0%, a number which we are confident will drop to zero and soon negative if the slide in stocks accelerates due to the impact financial conditions and the (lack of) wealth effect have on the broader economy.
That number was slashed to 1% from 4% on account of Omicron, monetary tightening, and other economic factors, such as paths of inventories.
Similarly, JPMorgan, concerned about the effect of rising rates and other economic factors on consumer spending and the economic situation, slashed its guidance for the quarter too, again according to ZeroHedge:
The weakness in data, JPM explains for the benefit of the Fed which in hopes of recovering its “credibility” after destroying it in 2021 when it said inflation was transitory and is now scrambling to fix its error is now willing to crash the market just to reduce aggregate demand, “indicates consumption should moderate in 1Q22.” And since consumption accounts for 70% of US GDP, guess what that does to overall US growth?
Or don’t guess and read what JPM now expects: “we forecast growth decelerated from a 7.0% q/q saar in 4Q21 to a trend like 1.5% in 1Q22.“
Worst of all, this economic contraction is happening as inflation stays at perniciously high levels. What we’re seeing, a recession paired with devastating inflation, could very well be a return of Jimmy Carter-era stagflation.