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Based on Analysis of the Final Q2 GDPNow, a Recession Started in May

Even if we have two consecutive quarters of negative GDP, it's far more likely the NBER will date a recession start in May.
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GDPNow Forecast for 2022 Q2 Final1

Tomorrow, the BEA releases its preliminary (advance) estimate of GDP for the second quarter of 2022.

The above chart shows how the Atlanta Fed GDPNow model sees things. 

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is -1.2 percent on July 27, up from -1.6 percent on July 19. After recent releases from the US Census Bureau and the National Association of Realtors, the nowcast of the contribution of inventory investment to second-quarter real GDP growth increased from -2.50 percentage points to -2.30 percentage points, while the the nowcast of the contribution of the change in real net exports to second-quarter real GDP growth increased from 0.18 percentage points to 0.59 percentage points.

Real Final Sales

Most eyes are on the headline number, but that's not what one should be watching. The important number is Real Final Sales (RFS). It's the true bottom line number for the economy.

The GDPNow RFS estimate is 1.1 percent.

If accurate, that would rule out a recession starting in the first quarter. But it does not rule out a recession starting in May, my preferred starting month. 

April Retail Sales

The April retail sales report was on May 17.  I commented Retail Sales Easily Beat Expectations, US Treasury Yields Jump in Response

April retail sales come on on the hot side of economists' expectation. The Fed has work cut out for itself.

On May 17, the GDPNow forecast was 2.5 percent with real final sales at 3.7 percent. 

That's a hot start to the quarter based on April sales data. 

May and June Data

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Starting in May, retail sales floundered and housing fell though the floor. The RFS component of GDP fell from 3.7 percent to 1.1 percent. 

That means -2.6 percent on RFS in May and June. That's a pretty steep contraction. Strength in April negates a recession starting in the first quarter regardless of two quarters of negative GDP.

And nobody changed the definition of a recession. The NBER does not define a recession as two quarters of negative GDP. 

Looking Ahead

My May recession date depends on a couple of things: A GDP report from the BEA tomorrow that confirms GDPNow, and continued housing and retail sales weakness that I expect. 

Jobs are very lagging and unlike others, I expect relative strength compared to most recessions.

From a jobs standpoint I expect a Long But Shallow Recession With Minimal Job Losses.

From a stock market perspective, I expect things will be brutal.

For discussion, please see Artificial Wealth vs GDP: Why Earnings and the Stock Market Will Get Crushed

This post originated at MishTalk.Com.

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