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The Odds of Recession Starting in the “First” Quarter of 2022 Just Leaped

June 29, 2022

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7:12 pm

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62 comments

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Economics

The BEA’s Revision to First-Quarter GDP looks tiny but isn’t. The headline number went from -1.5 percent to -1.6 percent.

The initial (preliminary) headline estimate was -1.4%. That’s still a small change.

But the headline number is not the one to watch. What matters is real final sales (RFS). From the second revision to today’s third revision, the BEA just revised RFS from -0.6 percent to -1.2 percent.

RFS is the bottom line estimate of the economy. The rest is inventory adjustment that nets to zero over time.

Real GDP Billions of Dollars

Real Final Sales Last Four Quarters

2021 Q2: 19,449
2021 Q3: 19,453
2021 Q4: 19,524
2022 Q1: 19,464

That looks like stagflation or near stagflation three out of the last four quarters.

Whoa! Massive Inventory Overhang

We have never seen a massive inventory overhang like this.

It’s the result of fiscal and monetary stimulus on steroids. Merchants ordered far more goods than they could possibly sell.

Final Hurrah in Retail Sales

*Real vs Nominal retail sales since 2020, data from Commerce Dept via St. Louis Fed, chart by Mish*

It’s real, not nominal spending, that’s an input to real GDP.

The only thing potentially staving off a recession that is already six months old was a rebound in retail sales in April of 2022.

We are one revision away from a recession that’s been underway for six months.

For discussion of retail sales, please see Retail Sales Flounder in May With Negative Revisions in April

I’ve Seen Enough, the US is in Recession Now, Q&A on Why

On June 22, I commented I’ve Seen Enough, the US is in Recession Now, Q&A on Why

Today’s GDP revision adds more evidence to the recession has already started thesis. It makes a mockery of Fed talk that the “consumer is strong”.

For now, with the GDPNow estimate of RFS still at +1.7% I will stick with my estimate of a recession that started in May.

For a look at how the current quarter is tracking, please see GDPNow Forecast Inches Up to 0.3 Percent, But What’s On the Way?

This post originated at MishTalk.Com.

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62 Comments

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Captain Ahab

3 years ago

Bed, Bath, and Beyond Bites the Bullet… Sales down 27% CEO booted.

Casual_Observer2020

3 years ago

I hope there is a recession. I’m tired of people everywhere.

JackWebb

3 years ago

Reply to Casual_Observer2020

I’m hoping for a housing crash so I can get an electrician out here.

Jackula

3 years ago

I have noted a drop off in traffic here in LA. It was impossible to get around a couple months ago. Traffic 7 days a week.

MPO45

3 years ago

Reply to Jackula

Maybe drivers don’t like having $175 of their money held by gas stations.

https://www.wsj.com/articles/as-gas-prices-surge-stations-now-hold-up-to-175-of-your-money-when-you-swipe-11656277411

JackWebb

3 years ago

Reply to MPO45

I think it’s a good thing, given that my truck holds 32 gallons of diesel and it takes only 26 gallons to hit $175 where I am now that Joe Biden decided that it’s virtuous to pay $6.70 rather than $1.97. The usual practice was a $99 max (still true at the station closest to us), which means two separate fill ups, two cards. Progress!

JackWebb

3 years ago

Reply to Jackula

Come to think of it, I recall some trips to L.A. during the last big recession (2009-2012) and noticing that traffic was lighter.

MPO45

3 years ago

So Michael Burry has been saying the Fed could cut rates at next meeting given the current state of affairs and the whipsaw effect. Others think the fed will only hike 50 instead of 75 yet others think 75 or higher. This is what makes a wonderful market, everyone places their bets and there will be winners and losers and of course bragging rights…..

Right now I’m looking at buying RY, need to diversify a little out of USA and what better time to buy than during a recession and stocks are down?

PapaDave

3 years ago

When does the recession end and how deep will it be?

Followed by:

How strong will the recovery be and how long will it last?

Since recoveries tend to last much longer than recessions, I would like to see more info on the periods of economic growth.

And on where to invest in order to take advantage of the recovery.

Jackula

3 years ago

Reply to PapaDave

Tech has been beat down pretty good so that be a good place to start. Although I’m not convinced we are not gonna see a couple more legs down or a whipsaw market

PapaDave

3 years ago

Reply to Jackula

I agree.

MPO45

3 years ago

Reply to PapaDave

I’ve been buying Apple, they have a huge lineup coming out this year. They may be working on a car and carplay will likely become standard on every car sold. They have an awesome ecosystem of hardware, software, streaming entertainment audio/video and more. They have moved to their own silicon chips and clobber in battery/performance.

Basically, apple is dragging the dinosaur tech world forward like no other company on earth. I just hope an earthquake doesn’t hit their HQ, that’s the only downside IMHO.

PapaDave

3 years ago

Reply to MPO45

I read an interesting tweet from Eric Nuttall today :

“So Cathie Wood of ARK Innovation says her average tech holding is trading at 69X EV/EBITDA, while we estimate the average holding of the Ninepoint Energy Fund to be trading at 1.9X EV/CF at $100WTI (and a 34% FCF yield). Which sounds better to you???”

I have trouble finding good value in most tech plays.

MPO45

3 years ago

Reply to PapaDave

ARK has a huge Tesla position and that’s the big problem there. I already own a ton of oil even after selling some to bank some profits. I never put all my eggs in one basket, that is one dimensional thinking and I am a 5+ dimensional investor.

PapaDave

3 years ago

Reply to MPO45

Lol. I guess I am just too simple. But it works for me.

I like it when I can buy into companies that can pay off all their debt and buy back all their shares in 2 to 3 years from free cash flow. I want to be the guy who owns the last share.

MPO45

3 years ago

Reply to PapaDave

Well then keep doing it, no one here is asking you to stop. The only thing I ask is you be a bit more open minded beyond oil. You post and remind us every day about oil, I think we all got the message by now.

PapaDave

3 years ago

Reply to MPO45

Sorry. As I say. I am very simple. I find what works and stick with it.

Mish

3 years ago

Reply to MPO45

4th largest position is Teledoc

I think that one goes to zero

JackWebb

3 years ago

Reply to MPO45

Re: TSLA and Ark. Numbers rounded for ease of analysis

Tesla comon shares outstanding: 1 billion

ARK ownership: 1.3 million (0.13% of the common float, 6% of ARK’s holdings by market value)

In my mind, ARK is overweighted. But they are not a TSLA price maker. Cathie loves the headlines, but here are the big holders:

https://finance.yahoo.com/quote/TSLA/holders

JackWebb

3 years ago

Reply to MPO45

I don’t care whether it’s a tube of toothpaste, a house, a hooker at the corner of 3rd Ave and Lex, or a stock, there are two questions to ask when you’re thinking of buying something: What do you like? What should you pay? I have no opinion on Apple as a company, or on its fundamentals. I don’t know enough. You love the fundamentals. You need no help there. But what about the price? My gut says you’ll be able to get it cheaper. What’s your hurry?

MPO45

3 years ago

Reply to JackWebb

Who says I’m in a hurry? How do you know how much money I have? How do you know if I’m buying apple via naked puts dollar cost averaging down? How do you know if I’m selling calls on the shares and use the premiums to buy more stock? What makes you so sure apple will go down further?

When you have a large amount of cash sitting on the sidelines, it’s hard to see it wither away via inflation so I try to generate income from it. Apple isn’t the only thing I’m buying, it’s the only one I *suggest* people look into in addition to the other one I just *suggested* RY.

JackWebb

3 years ago

Reply to MPO45

I’m not “sure” of anything. People who are “sure” get their hat and other things handed to them by the markets. A stock is a conspiracy to steal your money unless it goes up (or down if you’re short.) I think it’s way too early to be buying anything, but I’m not sure. Good luck.

Lisa_Hooker

3 years ago

Reply to MPO45

We know because we have your email compromised and your telephone tapped.

Lisa_Hooker

3 years ago

Reply to MPO45

I always find it interesting how religion affects some people.

Captain Ahab

3 years ago

Reply to PapaDave

Honestly, no one knows. Possibilities range from pessimistic (a world-wide multi-year collapse of economic systems-implosion of stock markets, with huge losses in debt and derivatives) to optimistic (a few quarters of slow/negative growth, with central banks intervening with minimal impact financial assets).

Recovery could be very slow in real terms with dislocation of currencies, trade, social systems etc; or a quick recovery such as we saw with post-Covid.

MPO45

3 years ago

Reply to Captain Ahab

If we have republican states that decide they don’t want to certify the presidential election in 2024 because they don’t like the outcome, you better believe there will be economic Armageddon. I look forward to reading Mish’s posts from a far away land in 2 years.

JackWebb

3 years ago

Reply to MPO45

I don’t think it’ll be close enough for another try at ballot box stuffing, but I leave nothing past the “progressives.”

MPO45

3 years ago

Reply to JackWebb

at some point, when you start doing some real thinking all by yourself, you will realize that no matter who “wins” YOU and everyone else will be the losers. And you’ll tell yourself you are better off if “your” guy wins but we both know you won’t be better off. I’ll plan on being overseas and won’t even need to see what I already know is coming.

JackWebb

3 years ago

Reply to MPO45

I’ll be just fine. LOL. Hey, how about that Cassidy Hutchinson? Took less than a day to unmask that liar. Have any more “thoughts” to share?

prumbly

3 years ago

Reply to JackWebb

It’s amazing how many people the Democrats can field to give blatantly false testimony in the face of firm evidence to the contrary

JackWebb

3 years ago

Reply to prumbly

Three things are clear.

1. Hutchinson is crazier than a shthouse rat, just like Christine Blasey Ford.

2. Hutchison was repeating gossip filtered through her personal insanity.

3. The Democrats don’t care, because they know their media friends are happy to pass along any lie.

prumbly

3 years ago

Reply to MPO45

Yes, it’s very strange that Republicans in a supposed democracy should be against election fraud and want correct election results.

8dots

3 years ago

Tomorrow CPI might drop below Aug 2021 CPI @5.3%. // China, India, S.Korea, US and Japan are the largest importers of crude oil.

Putin give China and India 30% – 40% discount. Oil will tank.

PapaDave

3 years ago

Reply to 8dots

Wold-wide Oil inventories continue to shrink. Meaning demand continues to exceed supply. Hardly a situation where prices will tank. What is your rationale?

8dots

3 years ago

Reply to PapaDave

The largest user get Putin oil at 30% – 40% discount. They buy less from OPEC. Less demand, lower prices. In the long run supply will shrink.

Recession keep oil in the ground. We might have a real recession, not a technical recession. SPX might breach Mar 2020 low.

PapaDave

3 years ago

Reply to 8dots

None of that makes any sense. All that matters for the price of oil is worldwide supply vs demand. And demand continues to exceed supply. Until that changes, there will be upward pressure on prices. No matter what mental gymnastics you are trying to concoct.

Lisa_Hooker

3 years ago

Reply to PapaDave

I demand a Bentley or a Maybach. That doesn’t mean I’m getting one.

Captain Ahab

3 years ago

Reply to PapaDave

Up to a point, you are correct. Under normal conditions, arbitrage and price fixing balances different suppliers. However, even Powell has acknowledged the likelihood of global economic bifurcation–in fact my reading is he expects it given the US/EU pressures placed on Russia and China. If this happens, and it can with control measures such as piracy, sinkings, etc, there will be structural changes in demand and supply. Essentially two separate demand/supply curves, and a likelihood of eventual war.

JackWebb

3 years ago

Reply to 8dots

This is not showing up in the oil price numbers we see every day. Even if, say, WTI plunged, it would take time for that to be seen at the pump. Even if you wind up being correct about the world oil price, we sure aren’t going to see it in tomorrow’s CPI report. LOL

Captain Ahab

3 years ago

Reply to JackWebb

There is definitely something weird going on–I suspect the result of ‘high uncertainty’, to quote Ms. Lagarde. Oil futures six months out, for example, suggest uncertainty is affecting the market. That ‘uncertainty’ includes state meddling.

8dots

3 years ago

SPX do nothing all day today might end up as a morning star tomorrow. Yesterday, big red. Today, take a break (a trading range on 30 min). Day 3, June 30, big white. // If correct : June monthly close > Apr low leaving behind a large selling tail, indicating that buyers moved in.

Tony Bennett

3 years ago

2yr and 10yr 4bps from inverting (again).

Maximus_Minimus

3 years ago

Recession might have started, but I haven’t seen a meaningful difference in activity.

What I’ve noticed is a pandemic ending burst of activity coinciding with summer vacation driving.

What’s the percentage of population that actually follows and knows what the numbers mean?

The rest only understands gas prices and that’s it.

I expect maybe some noticeable decline in activity by fall, if the FED and BoC continue tightening, but after printing their way out of collapse for a decade, there might be a long way to go to effect behaviour.

JackWebb

3 years ago

Reply to Maximus_Minimus

I have to agree, at least at the anecdotal level. I vividly recall the interregnum between Shrub and O-who-ma in January 2009. I drove to S.F. and back that month, and even allowing for the seasonal winter decline, I have never seen it so dead. It was quite remarkable to see the fear in the form of not a lot moving out there on U.S. 101 and CA 1. People are pissed about gas and groceries in my rural and small town area, but I’m not seeing the fear. Yet.

Tony Bennett

3 years ago

Reply to Maximus_Minimus

“Recession might have started, but I haven’t seen a meaningful difference in activity.”

…

I recall these comments back in 2008. The traffic may well be the same or close to it (for now) but what about average ticket?

No one knows unless they can look into till of business.

An ex: patron of restaurant swapping a beer for water with meal.

JackWebb

3 years ago

Reply to Tony Bennett

I am a numbers guy from the get-go. I swim in a sea of numbers to the degree that I know their limitations along with their strengths. I also know the difference between anecdotes and statistics, and the risks of extrapolation. Still, in January of 2009, I didn’t have to look at the receipts. I have driven half a million road trip miles in all 50 states, and I have not seen anything approaching that. Dismiss it if you want, but in this case you’d be making a mistake.

Tony Bennett

3 years ago

Reply to JackWebb

By January 2009 the country in its FOURTEENTH month of recession, pretty much economic nadir.

I think we’re in a recession, just in early stages where things can still look normal to those not paying close attention.

No real disagreement here. I prefer to stick to the overall numbers.

MPO45

3 years ago

Reply to Maximus_Minimus

I will re-iterate my theory here. There are TWO Americas and TWO economies. Yeah, it’s crazy radical here in the “bipolar mode” of thinking around here since either everything in the known economic universe is fine or everything in the known economic universe everything is bad.

The first economy is that of working professionals (lawyers, doctors, tech, pilots, etc) and they are banking serious money right now. No issues here that I can see so far. And yeah, I know a few companies have rescinded offers (Coinbase) and others that had doomed business models to begin with, don’t even go there.

The second economy are those that work everywhere else: minimum wage jobs, grunts, etc. Yeah, these people are hurting real bad right now. Gas, housing, food is expensive and pay is low even at $15/hr.

You could also slice and dice by industry, age groups, and professions and the difference is more clear but people here can do their own due diligence.

JackWebb

3 years ago

Reply to MPO45

I understand that they write songs about that. LOL

https://www.youtube.com/watch?v=85BrDmvpiVY

Lisa_Hooker

3 years ago

Reply to JackWebb

A song for next year: https://www.youtube.com/watch?v=ovndTa7hQDE

Christoball

3 years ago

Reply to MPO45

“The first economy is that of working professionals (lawyers, doctors,
tech, pilots, etc) and they are banking serious money right now.”

Doctors and Lawyers are known for not always telling the truth, but pilots rock.

I hear Movie Stars and Astronauts are doing very well these days also.

The link below shows the Bellamy Brothers said it best… I’m a doctor, I’m a lawyer, I’m a movie star

I’m an astronaut and I own this bar

… And I’d lie to you for your love

I’d lie to you for your love

I’d lie to you for your love, that’s the truth

https://www.youtube.com/watch?v=FFpuupelHLg

Captain Ahab

3 years ago

Reply to MPO45

Your ‘two economies’ are fundamentally tied together. One leads, one lags. Recessions ‘travel’ by industry and region. The evidence is the correlations of total employment by MSA and industry employment relative to the US total employment. The more essential the good or service, the less it is affected by recession. Eg. try doing without toilet paper.

Lisa_Hooker

3 years ago

Reply to Captain Ahab

That is why the bidet was invented. For people with forethought.

Captain Ahab

3 years ago

Reply to Maximus_Minimus

Talk to people; their expectations tend toward doom and gloom. The ‘number’ of 18-wheel trucks on the freeways is always a leading indicator for me.

JackWebb

3 years ago

Reply to Captain Ahab

Railcar loadings too.

JackWebb

3 years ago

RFS is the bottom line estimate of the economy. The rest is inventory adjustment that nets to zero over time.

Could you do the long division on that? I don’t doubt you one bit. It’s just an analytical perspective (or equation) that I’m not accustomed to. If RFS (real final sales) = GDP adjusted for inventory changes (do I have that right?), then where do imports and exports enter the picture? Again, not even disputing you in the least. I simply don’t know, so I am asking. Thanks much.

Also: If gasoline is suddenly a much bigger component of RFS, does it distort the calculation of GDP in any way? I wouldn’t think so, but again, I’m not accustomed to this particular data set and you are.

JackWebb

3 years ago

Reply to JackWebb

Belay that request. Found it myself, and am kicking myself for being lazy.

https://corporatefinanceinstitute.com/resources/knowledge/economics/gdp-formula/

Tony Bennett

3 years ago

“We have never seen a massive inventory overhang like this.”

…

Business margins about to meet Mr Steamroller.

Captain Ahab

3 years ago

Reply to Tony Bennett

The inventory overhang was entirely predicable, and inherent in most low-level forecasting systems–based on past predicts the future–whether simple extrapolation of last year’s sales, or auto-regressive/moving average models. I don’t have the time to dig back through my previous comments, but I was saying the same thing in 2021 even as people worried about supply problems.

goldguy

3 years ago

What a mess…. we have been in recession since May and more increases in interest rates going forward? This doesn’t end well

Tony Bennett

3 years ago

Reply to goldguy

You are so right.

Only a matter of time before a credit “event” (offshore / onshore) to kick off Chaos.

We’re not going to get away with just a recession.

Captain Ahab

3 years ago

Reply to Tony Bennett

Any ideas on possible credit events?

Some of my possibilities: Japan cracks as Yen sinks. Wells Fargo loses a wheel. Implosion of crypto. Greece and/or Italy sinks the EU. FED sticks to its cannons and sinks hopes. Something breaks in the derivatives markets and it unravels.

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