Friday, April 29, 2022

The US economy shrank in the first quarter

By Anneken Tappe | CNN Business

America's economy unexpectedly shrank in the first quarter of 2022, data from the Bureau of Economic Analysis showed Thursday.

The nation's gross domestic product -- the broadest measure of economic activity -- declined at an annualized rate of 1.4% between January and March in an abrupt reversal of the prior year's strong growth.

While one quarter does not yet make a trend, it is a warning sign for how the recovery is going: Two straight quarters of declining growth meet a commonly used definition of a recession.

It was a marked slowdown from the 6.9% growth pace recorded in the final quarter of last year, and the worst performance since the pandemic recession in the second quarter of 2020. Economists had predicted an annualized growth rate of 1.1%, according to Refinitiv.

Much of the decline was due to a decrease in inventory investment, which had been booming in the final months of 2021.

Exports and government spending also fell, while imports rose. Consumer spending, which is vital to the economy, increased as prices kept rising.

The price index tracking personal consumption expenditure rose 7% in the first three months of the year, or 5.2% when stripping out energy and food prices.

A second estimate of first quarter GDP growth will be published at the end of May.



How Bad Will the Biden Recession Be?


(AP Photo/David Karp, File)

With inflation the worst it’s been in 40 years, can a significant recession be far behind?

Deutsche Bank certainly thinks a major recession is in the offing. At the beginning of April, the multinational investment and financial services bank originally forecast a mild U.S. inflation. But on Tuesday, its team of economists wrote in a report to clients, which was titled “Why the coming recession will be worse than expected,” “We will get a major recession.”

At issue is the rampant (and completely predictable) inflation caused by Big Left’s disastrous COVID-19 response. Shut down businesses and industries? You disrupt the supply chain and create shortages. Flood idle people with trillions of freshly-printed new cash while pausing their rent and loan obligations? Now you have a massively increased number of dollars chasing a greatly reduced amount of goods. Add in higher fuel costs from Biden’s God-awful energy policies, and prices on everything are sky-high.

When the problem is severe enough, the Federal Reserve steps in and raises interest rates to make money more expensive. This tactic unfortunately has the nasty side effect of slowing the economy, as businesses and consumers rein in spending, production drops, and jobs are lost. (This is why everyone warned Biden and his Leftist Congress not to dump trillions of dollars into the economy in the first place — there’s no good way to fix the problems that behavior creates.)

The Fed maintains that it can thread the needle and raise interest rates just enough to clear away that pesky inflation, but not so much as to crush the economic recovery from the catastrophic COVID-19 shutdown policy. But The Street reports:

Deutsche Bank economists don’t think it will play out that way. Led by Chief Economist David Folkerts-Landau, they see the Fed having to raise the federal funds rate to 5%-6% to get inflation under control. The fed funds rate is now 0.25%-0.5%.

Rate increases, Fed balance sheet reduction and the “financial upheaval that accompanies [them] will push the economy into a significant recession by late next year,” the economists wrote in a commentary.

“Something stronger than a mild recession will be needed to do the job” of controlling inflation. They see unemployment ultimately rising by several percentage points. It totaled 3.6% in March.

The basic problem: “the scourge of inflation has returned and is here to stay,” the economists said. “While we may have seen the highs now, it will be a long time before [inflation] recedes back to acceptable levels near the Fed’s 2% target.”

New York-based Goldman Sachs is more optimistic, predicting that inflation will be tackled without tipping the nation into a recession. In a Friday report, the investment bank’s economists wrote, “We do not need a recession but probably do need growth to slow to a somewhat below-potential pace, a path that raises recession risk.”

Likewise, economists from UBS, which is headquartered in Switzerland, wrote on Monday that “Inflation should ease from current levels, and we do not expect a recession from rising interest rates.”

It would be awesome if we could get rid of Bidenflation while still avoiding a recession. But there are other indicators that a downturn is on the way.

For one thing, the demand for trucking services took a nosedive last month. Fox Business covered the story:

A sharp, unexpected downturn in trucking demand since the beginning of March could be evidence of a looming economic recession, according to Bank of America strategists.

A Tuesday analyst note from Ken Hoexter, the managing director of Bank of America’s trucking research, shows that shippers see rapidly softening demand for trucks, with a gauge tracking truckload demand falling for the fourth consecutive month to its lowest level since June 2020.

That is “near freight recession level,” Hoexter wrote. On an annual basis, the gauge has plummeted about 23%.

Fox notes that “Trucking has proven to be a somewhat reliable indicator for the U.S. economy and is often viewed as a bellwether, because when people buy less, companies ship less and business activity then slows,” and that “Broader economic downturns have followed six of the 12 trucking recessions since 1972, according to one analysis conducted in 2019 by Convoy, a trucking data company.”

In another alarming development, a dreaded yield curve inversion occurred at the beginning of April. Morgan Stanley reported:

Recently, yields for 2-year Treasuries moved higher than those of 10-year Treasuries, or what economists call a “2s10s” curve inversion. Morgan Stanley strategists think the 2s10s curve will invert further and sustain that inversion throughout the remainder of the year.

Morgan Stanley, BlackRock, and other investors quickly downplayed the importance of the inversion. Gargi Chaudhuri, BlackRock head of iShares Investment Strategy, Americas, wrote, “We do not see a recession occurring in the near-term.” She claimed, “While we are hesitant to say that this time is different, we note that many factors now differ from previous yield curve inversions.” Let’s hope.

There are also psychological issues at play. There’s a hot war in Europe that threatens to spread. Politicians now regularly make capricious decisions with years-long ramifications that make investment and development near-impossible, such as shutting down energy projects already in progress, locking down economies whenever someone sneezes, and constantly changing the rules about who can cross borders. No one is feeling particularly confident about long-term planning just now, which will depress economic activity.

Anyone who has been around a generation or two has seen all of this happen before. Biden and the Democrats’ inflation followed by recession was as predictable as the sunrise. And thus, it’s easy to predict what they will do next: blame the inevitable downturn they caused on the new Republican Congress we’ll be swearing in after the midterms.

Bet on it.