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GDP Declines 1.4% in First Quarter of 2022 Sounding Recession Bells

April 28, 2022

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3:28 pm

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43 comments

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Economics

Chart Notes

Real Gross Domestic Product (GDP) decreased at a seasonally-adjusted annual rate (SAAR) of 1.4 percent in the first quarter of 2022
Real means inflation adjusted.
In the fourth quarter, real GDP increased 6.9 percent SAAR.
Real GDP declined 0.4 percent at a seasonally-adjusted but not annualized rate.
Real final sales declined 0.6 percent SAAR in the first quarter.

That last bullet point is the most important one.

Real final sales are the bottom line measure of the economy. The rest is inventory changes that nets to zero over time.

A Word About Imports

https://twitter.com/Noahpinion/status/1519700947168993280

It’s true. Imports do not subtract from GDP. They are net neutral.

The reason for the subtraction is the word “net”.

For example, retail sales erroneously add to GDP because imports are included.

So the BEA subtracts out what should not have been added in the first place.

— Mike “Mish” Shedlock (@MishGEA) April 28, 2022

Real GDP in Billions of Dollars 2022 Q1

The above chart puts perspective on inventory growth. Real final sales have not kept up with inventories.

Huge Miss by Bloomberg Economists

GDP: Economists’ Consensus +1.1 Percent vs -1.4 Actual
Personal Consumption Expenditures: Economists’ Consensus +3.4 Percent vs +2.5 Actual

Despite all the warning bells, economists missed the mark badly.

Worse yet, consumer spending was solid, despite the miss.

What happens when consumer spending goes to hell with the demand destruction due to rising mortgage rates and the falling stock market?

The Fed Searches For the Neutral Interest Rate, Where the Heck Is It?

Meanwhile, The Fed Searches For the Neutral Interest Rate, Where the Heck Is It?

Two rate hikes of a half-point each are penciled in for May and June. The December consensus bet based on actual trades is 2.75% to 3.25%.

We will not get there.

It’s possible a recession has already started!

This post originated at MishTalk.Com.

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43 Comments

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Oldest Most Voted

Mike 2112

4 years ago

https://www.zerohedge.com/commodities/first-shipment-russian-coal-paid-yuan-its-way-china

This is why the Fed has to defend the dollar. This trend away from the Bully-dollar will not end. And when some of that excess petrodollar comes home it will fuel even more inflation.

The Fed has to hike and then hike and then hike again or inflation will destroy our society and eventually the dollar.

Mish

4 years ago

Added a pair of important Tweets on imports impact on GDP

PapaDave

4 years ago

A recession could easily happen. Still happy with the vast majority of my portfolio; especially the oil and gas stocks. Whether the economy is growing or not, there are always opportunities out there. The trick is to find the right opportunities.

Lisa_Hooker

4 years ago

Reply to PapaDave

I believe that a real economy is much better than a trick economy.

Tony Bennett

4 years ago

I don’t see trade component getting better soon. $US (dxy) up another 6% in April. Not to mention when S&P corps bring offshore earnings onshore (for earnings purposes converted to $US) they’ll take a beating.

Durables + fixed investments held up Q1, but interest rates shooting higher ytd will be a (definite) drag going forward.

Mish

4 years ago

Reply to Tony Bennett

excellent comment

Christoball

4 years ago

Reply to Tony Bennett

Good point, I never thought of that. Also the developing countries have debts denominated in US dollars, which should really shake things up.

PreCambrian

4 years ago

So real GDP declines by 1.4% annual rate and the market is up over 2% in a day.

KidHorn

4 years ago

Reply to PreCambrian

The FED will be less likely to withdraw liquidity. Bad news for the economy is good news for equities.

QTPie

4 years ago

Reply to KidHorn

I think the market will be in for a rude surprise on that front. Given inflation, the Fed has no choice but to continue on the march towards higher rates and QT. It doesn’t even matter if inflation will see some upcoming moderation due to YoY effects because the Fed’s target is to get inflation to 2%… so even if inflation fell to say 4 or even 3% from 8.5% – that is still not good enough.

Tony Bennett

4 years ago

Reply to PreCambrian

Well, some good earnings out (Q1 will prove high water mark … for quite a while).

Steve_R

4 years ago

Reply to PreCambrian

Yesterday was the low for the S&P for the year, today is nothing more that an oversold market so a combination of short covering, plus end of month rebalance for fund managers. Oversold in a downtrend. Anybody that thinks that this market will go back to new highs is mistaken. Could get anther up day tomorrow depending of what apple and amazon report.

RonJ

4 years ago

“Two rate hikes of a half-point each are penciled in for May and June.”

Will -1.4 GDP knock some wind out of that sail?

MPO45

4 years ago

Reply to RonJ

If GDP is down (and I don’t doubt it) then why did/does inflation continue to climb? Ford and GM warned that prices are going up double digits in the future with current inflationary pressures.

PreCambrian

4 years ago

Reply to MPO45

Supply destruction is greater than demand destruction.

Carl_R

4 years ago

Reply to MPO45

This may come as a shock, but stagflation is a real thing, and under the right circumstances, has been known to occur. In the 1970’s, the triggers were dramatically higher oil prices, combined with a transition from the baby boom of the 1920’s to the baby boom of the 1950’s as the key component of labor, leading to a drop in productivity. Of course, we don’t have anything like that at the moment. Oil prices are low, and the baby boomers of the 1950’s aren’t retiring.

/sarc

Siliconguy

4 years ago

Reply to Carl_R

“and the baby boomers of the 1950’s aren’t retiring.”

Say what? I’m one of them and I retired four years ago.

Mish

4 years ago

Reply to RonJ

Likely not

Once the Fed sets a short term path it seldom deviates.

Beyond June is another story

Easing is different. Fed nearly always stay on an easing path once set. Think QE all the way through March!

killben

4 years ago

Reply to Mish

“Think QE all the way through March!”

Even if the inflation stays high?

Eighthman

4 years ago

We will witness something truly astounding and horrifying. Americans and Europeans will suffer poverty, job loss and food shortages while their governments spend ever more on war. Britain (Truss) has already promised this. You may never see stronger evidence that the West is ruled by an unaccountable elite. And I predict that within 2 years, the West will goad China into full on Cold War and crash the global economy thereby.

davidyjack

4 years ago

Reply to Eighthman

You can go ahead and blame the West first. Russian invaded for no good reason. West is best (despite its flaws).

RonJ

4 years ago

Reply to davidyjack

Yanukovich was overthrown for no good reason. McCain should not have been meddling in Ukraine. As with physics, actions beget reactions.

Nuddernoitall

4 years ago

Reply to RonJ

Ah yes, the Yanukovich “problem.” Well, he wasn’t quite the problem for many who actually voted for him, but the West in its always wonderful clarity of thought and mission, concluded he wasn’t the correct CEO to run the Ukraine operation.

William Janes

4 years ago

Reply to RonJ

A Russian puppet, Yanukovich, the people of Ukraine threw him out. Putin’s hands were all over Ukraine at that time: murder and meddling.

RonJ

4 years ago

Reply to William Janes

Biden’s hands were on Ukraine. Fire that prosecutor or you don’t get the billion dollars.

Puppetry.

hmk

4 years ago

Reply to RonJ

Yanukovich I am sure was no angel, but what in effect happened as the US overthrew a corrupt pro Russian leader and installed a corrupt pro US/West leader. Zelenski is reported to have hundreds of millions and up to 1.5 billion USD in offshore accounts. He will accept aid and weapons until every last fighting Ukrainian male is killed.

Mike 2112

4 years ago

Reply to davidyjack

Russia has NOTHING to do with the Fed’s bubbles and money printing.

Our leaders in DC and in Corp. America are corrupt and unaccountable.

Karlmarx

4 years ago

Ok – so I won’t take a bow considering that my estimate on the bbg survey was 1.0 for the quarter. But that was on April 4 when GDP now was at 1.5 percent. I honestly did not foresee the big drop in exports considering that the War in Ukraine was going on and the Administration was touting huge arms sales and lng exports and stuff.

I guess the various port shutdowns may have had a bigger impact than i had thought.

randocalrissian

4 years ago

Mish is being generous saying a recession may be here/alarm bells ringing. Today’s GDP print arrived with an audible thud. 8%+ inflation and negative GDP? We flipped straight from a barn-burning Q4 into technical stagflation even if the data point is too small to call it that just yet. But no matter what the Fed does, leave inflation high or squash GDP with fiscal policy levers, they will put additional strain on an already wonky economy.

Karlmarx

4 years ago

Reply to randocalrissian

I count on the fed to do both.

Nuddernoitall

4 years ago

Broad media spin today says no recession now and no recession soon. Nothing to see here they say, just move along. Since I believe everything they say, their accurate analysis comforts me.

Captain Ahab

4 years ago

Reply to Nuddernoitall

I am increasingly of the opinion that anything the mass media says should be ignored.

randocalrissian

4 years ago

Reply to Captain Ahab

Considering the mass media has two overarching mandates, neither including reporting news or being truthful, why should we expect them to be worth listening to? If you don’t know the only two things media MUST do, it’s time to brush up on basic business principles. Hint: it’s (1) generating an audience so that you can (2) sell ad revenue for top dollar, symbiotic tasks that create profits to keep the business in existence. If you can do both of those things and make bigger profits by lying than by telling the truth, then it would be bad business to report the truth. Cynical? Sure. I welcome any assault on the idea. Just look at how Trump approached this principle as President.

Casual_Observer2020

4 years ago

Well that was unexpected. This means we literally went from stagflation to recessflation (inflation with negative growth).

Mish

4 years ago

Reply to Casual_Observer2020

Actually, stagflation means recession and inflation at the same time.

Keynes thought that to be impossible. So Keynesian thinking should have ended right there. Unfortunately, it didn’t.

randocalrissian

4 years ago

Reply to Mish

Perhaps JMK overestimated human intelligence in the area of fiscal policy.

Maximus_Minimus

4 years ago

Reply to randocalrissian

Overestimated human intelligence AND the political process. Probably, never really understood Plato.

Casual_Observer2020

4 years ago

Reply to Mish

I thought stagflation meant stagnant growth and rising inflation. That’s what we had in 2021. My recollection of the 70s isn’t that good as I was born in 73.

Lisa_Hooker

4 years ago

Reply to Casual_Observer2020

I hear you. My memories of the 70’s were limited by the consumption of uncategorized and outright illegal substances.

Lisa_Hooker

4 years ago

Reply to Casual_Observer2020

This is the new modern efficient economy.

We skip over the boring stable consistent livable economy.

We do only the highs and lows.

KidHorn

4 years ago

But, unemployment is at all time lows and interest rates are still really low historically. Must be Putin’s fault.

Captain Ahab

4 years ago

Reply to KidHorn

Take a look here: https://fred.stlouisfed.org/series/EMRATIO and you might want to rethink ‘unemployment is at all time lows’.

Mish

4 years ago

Reply to Captain Ahab

I commented on that with a better set of charts the other day.

Understanding the True Job Shortage and Why It’s Happening

There’s far more than meets the eye when it comes to employment levels and the unemployment rate.

https://mishtalk.com/economics/understanding-the-true-job-shortage-and-why-its-happening

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GDP Declines 1.4% in First Quarter of 2022 Sounding Recession Bells

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