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
How Bad Will the Biden Recession Be?
BY ATHENA THORNE | P
(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
“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
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
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
Bet on it.