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Soft Patch in the Third Quarter or Does a Recession Start?

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19 comments on Soft Patch in the Third Quarter or Does a Recession Start?

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Economic data keeps weakening. Coupled with that data so goes the forecasts.

The GDPNow Forecast for the third quarter is 0.5% as of October 18. The initial forecasts for the third quarter was 6.1% on July 30.

There’s less than a week of data coming in as the Gross Domestic Product, 3rd Quarter 2021 (Advance Estimate) is out on October 28. 

Overall GDP is flirting with negative numbers.

More importantly, real final sales, the true bottom line measure of the economy is solidly negative at -1.6%.

The difference between the actual forecast and real final sales in an inventory build. But inventories net to zero over time.

Look for the Fed to declare a “temporary soft patch”. But this could be much more serious.  

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Mike Shedlock

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19 Comments
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QTPie
QTPie
4 years ago
Ah, recession, schmischion… the market just hit all time highs today!
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Six000mileyear
Six000mileyear
4 years ago
The eviction moratorium has been out of the news cycle lately, so its storm must be brewing until it gets so bad it can’t be ignored.
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anoop
anoop
4 years ago
just buy the dip and stop worrying about things like inflation, gdp, and shortages.
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KidHorn
KidHorn
4 years ago
But, I thought we were having shortages because the economy was booming. Is the white house lying?
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dbannist
dbannist
4 years ago
I see deflation and inflation happening at the same time.
Deflation in assets, inflation in things people need on a regular basis.
You cannot accrue debt at the rates the USA is without a manufacturing base and expect there not to be inflation.  Virtually all of the inflation since 2008 has been in asset prices, not every day purchases.  That is about to be reversed.
I believe the FED will step in and keep rates as low as possible for as long as possible (until the merry-go-round stops) and inflation on basic needs will NOT be  transitory.  People need these things and demographics guarantee a labor shortage for some time.  Assets cannot be propped up and will fall, the more liquid ones first.  Bitcoin first, stocks second and real estate 3rd, though real estate may not fall for years.
Average it all out and it may appear that deflation is happening, but since the bottom 50% own nothing, they are about to be badly burnt by what is coming in the price of everyday purchases vs. incomes that will not keep up.
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Christoball
Christoball
4 years ago
Reply to  dbannist
Those are good points you make.
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TexasTim65
TexasTim65
4 years ago
Reply to  dbannist
This has been going on for a long time. At least since the 2008 date you cited.
Inflation in things you need (food, clothing, shelter), deflation in things you want (electronic gadgets etc).
Essentially things that we can manufacture virtually infinite amounts of, are decreasing in price or at least improving while remaining the same price. Things that we can’t are inflating in value because they are finite against infinite population/demand growth.
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dbannist
dbannist
4 years ago
Reply to  TexasTim65
Invest accordingly.
People can see the coming storm clouds and complain about them and how unfair it all is….and change nothing and suffer the consequences.  A book I read called “Who moved my cheese” was a book that highly influenced my financial affairs and outlook on life.  I think every investor should read it.  It’s very much on the level of the best financial books out there though it’s more about philosophy of life but has strong financial applications.
I’m pretty small potatoes compared to the forces moving the coming clouds but I can certainly begin to find shelter and prepare.
I like income producing real estate, not real estate held to sell later.  The former will continue to appreciate and hasn’t really appreciated all that much where I live.  It’s very stable and produces 25% annual returns for me now.  The latter, real estate just held as an investment (like a propertry you just own hoping it does up in value) is vulnerable to a fall in price and also produces no real income.  I also like gold, as illogical as it is.  It is precisely because it’s illogical and the common man flees to it during bouts of high inflation that I hold it (Barrick Gold stock actually….also will likely buy me a bit of Newmont).  I don’t see the Fed able to raise rates to fight inflation and gold will benefit while other asset prices fall.
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Eddie_T
Eddie_T
4 years ago
Reply to  dbannist
I like Gold Royalty GROY…but it is maybe a little overpriced. But not a lot. I want to own some kind of exposure to gold and silver. I don’t own any, but I’ve been looking at it. Marin Katusa did a YT video on it.
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Tony Bennett
Tony Bennett
4 years ago
Census Bureau has a weekly household pulse survey.  Latest out today.  Week 39.
On question of difficulty paying household expenses.  For those finding it very difficult:
week 37:  25,096,000
week 38:  26,542,000
week 39:  26,891,000
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Tony Bennett
Tony Bennett
4 years ago
“Economic data keeps weakening.”
…
Yep.
And it will keep getting worse thru year end.  I made that call months ago.  Frankly, it was an easy one.  Just needed to know the end date for stimulus / rent moratorium / forbearance.  No way  this economy can walk on its own … especially, with inflation surging.  Federal Reserve has painted itself into a corner.  Inflationistas enjoy the moment … your time about up.  Crashing demand will see to that.
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Eddie_T
Eddie_T
4 years ago
Reply to  Tony Bennett
The corporations with their billions in the bank will be fine. Mom & Pop businesses on Main Street are far from recovered, and I always expected another rough patch at some point. If we have a prolonged recession we will see a once-in-a-generation collapse of small employers.
As we found out in COVID, we might provide a lot of jobs, but our success or failure doesn’t move the needle much on actual economic data, compared to the multinational giants of industry. I am probably fortunate to be near retirement. Many people in my field are saddled with a ton of business debt and student loan debt…and pay very high rents…..now payrolls are going up.  The top line is capped and the bottom line is shrinking and will continue to shrink until the independents are put out of business. So it goes.
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Christoball
Christoball
4 years ago
Reply to  Eddie_T
Without revenue big corporations can bleed pretty fast. They have so many fixed costs to just keep the lights on.
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dbannist
dbannist
4 years ago
Reply to  Tony Bennett
The free rent deals end next summer.  They are just getting started really.  

For most low income renters, that’s a free 500 a month coming their way until June of 2022.  

Still, other freebies have ceased and that’s a removal of a tail wind.

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Rbm
Rbm
4 years ago
We were starting/in a recession before covid lock downs.  Would not think covid lockdown would turn things around.  
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Tony Bennett
Tony Bennett
4 years ago
Reply to  Rbm
Yes.  Glad you noticed the weakening.  Fedgov ran a $6 trillion deficit (over 18 months + FR craziness) to buy a can kick  to here.  Now what???
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Karlmarx
Karlmarx
4 years ago
Reply to  Rbm
Yup cycle defiantly peaked in January 2019.  I would suggest that we are still technically in a recession since the vast majority of so-called growth was simply a transfer of resources from the future to this year.  I think the self-appointed boffins at the NBER called this end way too soon.
  
We are still forecasting growth at around 3 percent for the quarter since July was ok and some sectors are back like air travel.  But growth is going to stay well below the 2 percent maximum level that a Biden Administration can achieve until production of services comes back strong.  
we have kind of run out of people willing to purchase inflated homes and pelotons.
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Christoball
Christoball
4 years ago
Reply to  Rbm
The rubber band was about to snap before covid hit. Covid gave a good excuse to inject massive amounts of liquidity into the system. For all the grumbling about free money at least this time it got spread around a little. 10 years ago there was this guy on this forum when it went by another name. He used to go on and on about guaranteed basic income. He had a good understanding about the flaws of fiat money systems and fractional reserve banking, and that was his solution.  I always wonder what happened to some of these people from the past who I would read regularly.
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Eddie_T
Eddie_T
4 years ago
Recessions come and recessions go.  I expect another one sooner or later before COVID is done. And even though people want to forget it, we aren’t through it yet.
It pays to position yourself  for resilience in an uncertain world. Got tangible assets?
I don’t look for a Great Reset anytime soon.  I expect a hunker-down, muddle-through approach is likely to work for the short run. I’m more worried about the future debt overhang from the 2T in spending that will most likely be passed under Biden….but those chickens are not the ones going to roost right now.
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