One day it’s -1% GDP growth. The next morning it’s -2.1%.
It’s not official. Only the National Board of Economic Research says when the US economy had dropped into a recession. And the final numbers for the second quarter aren’t here yet.
But the economy seems so increasingly troublesome that the Atlanta Federal Reserve’s GDPNow tracker—a blow-by-blow estimate of where the economy is on any given day—can’t keep up. On Thursday, it ran an estimate alert, popping up on the phones of economic geeks all over the country, that GDP was going to contract by 1% in the second quarter. While no guarantee, it’s a strong suggestion that there’s already a recession going on.
Then, on Friday morning, there was another alert. That -1% dropped to -2.1%. As the Atlanta Fed wrote, “After this morning’s Manufacturing ISM Report On Business from the Institute for Supply Management and the construction report from the US Census Bureau, the nowcasts of second quarter real personal consumption expenditures growth and real gross private domestic investment growth decreased from 1.7 percent and -13.2 percent, respectively, to 0.8 percent and -15.2 percent, respectively.”
In other words, economic news was worse than expected. Again, it may not be a recession, but two quarters of negative growth, while not a definition, has been a rough rule of thumb for recessionary times since late in 1974 when an economist at the Bureau of Labor Statistics proposed it in an op-ed of the New York Times.
Perhaps it shouldn’t be a surprise. The Fed has been jacking up its benchmark interest rates to head off inflation and one of the potential side effects is a recession. After all, the point is to slow economic growth, and if there is a recession, blaming the Fed isn’t useful as conditions were prone to such an outcome.
“While inflation may be peaking, it will take time to get back down to the ideal of 2% or close to it,” says Mark Bosswick, managing partner of accounting and advisory firm Berdon. “As interest rates continue to rise, they will impact the economy. The attempt to balance reducing inflation without hurting the economy enough to trigger a recession is a delicate operation. Each market shift has its own characteristics. This time COVID-19, the Ukraine War, the Great Resignation, and the supply chain disruption are all new and never-before-seen factors. They will be resolved in some fashion at some time, but investor confidence is shaken right now. However, the underlying fundamentals of the economy are much stronger than in previous times where there were more pervasive and systemic economic issues.”
And it’s not like blame will help anything, because there’s too much work to do. “[Our] major concern right now is the interest hike that has taken place in the last three months and the three-quarter percentage hike coming up in July that is going to drastically reduce the bottom line and the cash flow, as most of us have flooding rates with the mortgages,” Vimal Patel, CEO at Q Hotels, tells GlobeSt.com. “That is going to seriously erode the cash flow and the bottom line. Having the gas prices exceeding five dollars, the goods and materials and costs having gone up, has created problems in managing the profitability without trying to increase prices. Both [our] hotels, for example, are still struggling to hike rates as they recover from the pandemic, which adds to the burden of the losses. However multifamily has managed to increase the rent base while dropping in occupancy.”
Source: “”
