Oct 27, 2022
VOT Research Desk

Market Insights, Considerations & Analytics

A third and final estimate from the Bureau of Economic Analysis on Thursday confirmed that the U.S. economy declined for the second consecutive quarter this year. This confirms that the economy has technically entered a recession, despite predictions from economists that signs of a slowdown will only intensify in the upcoming quarters.

TOPIC Features

The Bureau of Economic Analysis reported in a final estimate released Thursday that the U.S. economy shrunk at an yearly rate of 0.6% in the second quarter, marking the second consecutive quarter of negative gross domestic product growth and signaling the economy has reached a slowdown.

The result increased from the 0.9% fall predicted in July but was unchanged compared to a projection from last month.

The government attributed the worse-than-anticipated result to dwindles in housing investments (or home purchases), federal federal spending, and business inventories, but claimed that an increase in exports and spending helped the economy bounce back from a 1.6% decline in the previous quarter.

Tim Quinlan, senior economist at Wells Fargo, believes that a working definition of a recession is two consecutive quarters of negative GDP growth, however this is not the formal definition. The National Bureau of Economic Research, which describes a recession as “a considerable fall in economic activity” lasting “well over a few months,” will make the final determination.

Production, income, employment, and spending, which make up four of the six indicators the NBER uses to determine whether a recession has begun, all did continue to indicate expansion through May, according to Quinlan. However, he notes that production does seem to be “running out of steam” and income gains are unable to keep up with inflation, all while jobless claims are rising.

Quinlan says that although he and other economists are not sure that economic data from the previous quarter indicated a current recession, the economy is weakening and “it is beginning to feel like reaching one

just a question of time.

Although we do not believe the economy is now in a recession, if our prediction proves to be accurate, this is not so much a head fake as it is a sign associated with adverse things to come.

He contends that “yet another” variable factors like export revenues and storage, rather than poor underlying demand, are to blame for the first half of the year’s negative GDP growth. We anticipate the deafening cries of a real recession to arrive early the year after.

the GDP of the Federal Reserve Bank of Atlanta, despite predictions from economists that growth would rebound in the second quarter. Following the release of economic data showing a decline in consumer expenditure in May, the Now model started to suggest the onset of a period of decline in July, driving its GDP projection into negative territory.

Since the Atlanta Fed began using it in 2011, the standard deviation has only been 0.3 points. The model predicted that the economy contracted by 1.2% during the last quarter before the GDP release. It now anticipates third-quarter economic growth of 1.4%.

WHAT TO LOOK OUT FOR

On October 27, the government reveals its preliminary estimate of third-quarter GDP growth. The third quarter’s growth is now only expected to reach 0.3%, down from earlier projections made previous month of further than two percent.

IMPORTANT HORIZONS

Concerns about an approaching recession have increased as a result of the Fed’s removal of its fiscal stimulus and interest rate increases this year. This summer, economists at Bank of America issued a warning to their clients that the economy has begun to “worryingly erode,” especially in the once-thriving housing market, as a result of ongoing inflation and the ensuing interest rate increases. They claimed, expecting the economy will enter a recession during the following year, “The Fed has become more dedicated to utilizing its instruments to assist restore price stability, with a willingness to tolerate at least some pain in the process.