According to predictions made by economists, the economy hardly expanded in the second quarter, and some predict that it even shrank.
According to the calculations, the economy may have expanded by a few tenths of a percent. While Moody’s Analytics predicts a 1% fall, Goldman Sachs anticipates a 1% rise. On Thursday, the GDP report will be made public at 8:30 a.m. ET.
The first quarter’s fall of 1.6 percent was followed by the expectations for slow growth. However, there are several predictions for a contracting economy, like the GDP Now tracker from the Atlanta Fed, which predicts a second-quarter decline of 1.2 percent.
It would be the second consecutive negative GDP report, which is one of the signs that the economy is in a downturn. A recession is now unlikely, although economists are quick to point out that the robust labour market and other factors make this unlikely. They also point out that a recession is not currently anticipated to be declared by the National Bureau of Economic Research, the official authority on such matters.
Jerome Powell, the chairman of the Fed, stated on Wednesday that he does not think the economy is in a recession.
“Let’s say it’s negative. The headline everywhere is going to be ‘recession.’ That’s not how the markets think about it, but you’ll see people screaming ‘recession,’” according to Wells Fargo’s head of macro strategy, Michael Schumacher. “Then there will be a debate about it. … It will matter more to the political types than the market.”
Before the release of the second-quarter report on Wednesday, some analysts upped their predictions after the monthly durable goods report came in stronger than expected and early trade data revealed a considerable narrowing of the trade gap. After a less significant 0.8 percent increase in May, durable goods increased by 1.9 percent in June.
Following the release of the data, economists at Goldman Sachs increased their gross domestic product projection from 0.4 percent to 1 percent.
Following the release of the data, Mark Zandi, chief economist at Moody’s Analytics, revised his projection downward to -1% from -1.3%. However, he also does not think that the negative number, when coupled with the decrease in the first quarter, would indicate a recession.
“I think it’s hard to see a recession when we created so many jobs. There are record unfilled positions,” He noted that the monthly average for job creation has been around 500,000. “It’s not consistent with the idea the economy is in a recession. It’s every single industry and in every corner of the country that is experiencing robust jobs growth. It’s just not a recession.“
372,000 new jobs were added to the economy in June.
Zandi stated that the causes of the contraction are temporary and that the negative growth estimates are likely to be revised higher. The slowdown can be partially attributed to Covid’s negative economic effects, which led to clogged supply chains and inventory problems.
“The weakness in Q1, Q2 GDP goes to trade and inventories primarily, and those are temporary factors in GDP,” he said. “They swing the GDP number around quarter to quarter, but they’re not persistent sources of growth or weights on growth.”
Zandi noted that although trade reduced GDP by 3.2 percentage points in the first quarter, it should increase GDP in the following period.
“We had a pretty large inventory gain in Q1. … I think this goes to disruptions in trade related to the pandemic and the timing of things,” he said. “Inventories were up significantly in Q1. … We’re going to see some inventory accumulation in Q2 but not as large an inventory gain. Therefore, that’s a drag on GDP.”
Following the economic data released on Wednesday, JP Morgan researchers increased their growth projection from 0.7 percent to 1.4 percent.
“The most significant surprises were tied to trade and inventories, as the June trade deficit came in narrower than we had anticipated and the June nominal inventory changes were above expectations,” in a note, the economists at JP Morgan wrote.
Exports increased by 2.5 percent while imports decreased by 0.5 percent in June, resulting in a nominal reduction in the goods trade imbalance to $98.2 billion from $104 billion in May. Although the trade data is incomplete because it excludes services, JP Morgan economists said they now anticipate that a decreasing trade deficit will result in increased GDP.
“We think the data in hand are strongly suggestive that the real trade deficit narrowed noticeably in 2Q [which we now think added 1.6%-pts to 2Q real GDP growth],” they noted.
The trade statistics, according to Kevin Cummins, chief U.S. economist at NatWest Markets, supports his assessment that the economy expanded at a 1.5 percent rate in the third quarter.
“It’s not to say you can’t get a negative print but it’s less likely,” he said. Additionally, Cummins emphasised that a recession is not necessarily present just because two consecutive quarters were negative.
“If we get another negative quarter for Q2 they call it a technical recession,” said Cummins. “The problem with that is it’s not how the NBER looks at things. … They look at monthly data. They’ll look at employment. They’ll look at personal income, consumption, industrial production, all the monthly data and decide whether the economy is in contraction or expansion.”
