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Is The U.S. Economy Already In A Recession?

By Jesse Cohen/Investing.comMarket OverviewJul 01, 2022 01:36PM ET
www.investing.com/analysis/is-the-us-economy-already-in-a-recession-200626544
Is The U.S. Economy Already In A Recession?
By Jesse Cohen/Investing.com   |  Jul 01, 2022 01:36PM ET
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Recessionary warnings are growing louder daily as the Federal Reserve deepens its hawkish stance to combat the highest inflation in decades.

First, the U.S. central bank raised its benchmark interest rate by 75 basis points at its June meeting, the most significant hike since 1994. 

The Fed, which has increased its fed funds target rate by 150 basis points so far this year, also announced that it would start to reduce its massive $9 trillion balance sheet.

Fed Balance Sheet
Fed Balance Sheet

Indeed, Fed Chair Jerome Powell again stressed this week that fighting inflation is the central bank’s top priority, even at the risk of a recession. 

Speaking at the European Central Bank’s annual conference in Portugal on Wednesday, he acknowledged that the process would involve “some pain.”

Judging by the latest data, U.S. economic growth slowed sharply in June, with deteriorating forward-looking indicators setting the scene for an economic contraction in Q3.

Additionally, consumer confidence is now at a level that would typically herald an economic downturn.

U.S. Data Surprise Index
U.S. Data Surprise Index

At this point, a recession seems inevitable. 

The question is, when does it begin?

If going by the Atlanta Fed’s GDPNowcast tracker, which provides a running estimate of real GDP growth based on available economic data using a methodology similar to the one used by the U.S. Bureau of Economic Analysis, the economy is already in a technical recession.

According to the latest model estimate, growth in the second quarter of 2022 has been cut to a contractionary -1.0% as of June 30. That’s down from 0.0% on June 15 and compares to a growth of +1.3% on June 1. 

Atlanta Fed GDP Now/Real GDP Estimates
Atlanta Fed GDP Now/Real GDP Estimates

With the U.S. economy contracting by 1.6% in Q1, that would meet the technical definition of a recession—two consecutive quarters of falling GDP.

Interestingly, the latest survey of Wall Street professionals by Deutsche Bank showed that 17% believe the recession started this year, up from 13% last month and virtually 0 in February. Of these respondents, over a third think the recession has already begun.

Deutsche Bank Recessionary Survey
Deutsche Bank Recessionary Survey

The benchmark S&P 500 index wrapped up its worst H1 since 1970, down 20.6% year-to-date and roughly 22% below its Jan. 3 record close, meeting the technical definition of a bear market.

Meanwhile, the technology-heavy NASDAQ Composite, which slumped into a bear market earlier this year, is off by 29.5% this year and 32% away from its Nov. 19, 2021, record-high—its largest-ever January-June percentage drop.

The Dow Jones Industrial Average is down 15.3% year-to-date—its most significant H1 slump since 1962—and approximately 17% off its all-time high at the start of the year.

DOW, S&P 500, NASDAQ Daily Chart
DOW, S&P 500, NASDAQ Daily Chart

With inflation hurting consumers and businesses and the Fed rapidly raising interest rates as a result—along with ongoing global supply-chain issues—the economic outlook for the second half of 2022 looks difficult at best.

Is The U.S. Economy Already In A Recession?
 

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Is The U.S. Economy Already In A Recession?

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Comments (23)
Chris Sundo
Chris Sundo Jul 04, 2022 3:31AM ET
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Biden and the Fed should lay off the inflation issue. Inflation was created out of thin air during Covid and people are flush with cash now and people really don't care THAT much about paying a little more for everything. Certainly, people would NOT want to repay all the free cash they got during the pandemic in order to return inflation to zero now. -- So, Biden and the Fed should lay off the inflation issue now and realize that Biden only has a chance at reelection if he returns peoples' 401k's back up at least 50% of the decline since January. Inflation is a NATURAL RESULT of printing the kind of helicopter money that politicians have been doling out over the past few years. So, Biden and the Fed should realize that they can't harp on inflation in any way now. Inflation is a fact and move on to other topics like the new arms race. This makes me wonder why steel makers like X and rare earths are not in a lot hotter demand than now.
Steve Bojo
Steve Bojo Jul 04, 2022 1:37AM ET
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Yes
Ordu Daniel
Ordu Daniel Jul 03, 2022 10:56PM ET
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Hello 👋
James Victorino
James Victorino Jul 03, 2022 7:06PM ET
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Yes!
jason xx
jason xx Jul 03, 2022 10:44AM ET
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The reaction to a possible recession by the market will be worse than the actual recession. People can only panic sell so much
jason xx
jason xx Jul 03, 2022 10:42AM ET
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Recession may seem inevitable to you but it doesn't to experts. If we are already in a recession fed will have to stop tightening and get us out. If we are in a recession how come inflation hasn't come down?
JIM VETTER
JIM VETTER Jul 03, 2022 10:42AM ET
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Stagflation
Kerry Ditto
Kerry Ditto Jul 03, 2022 8:53AM ET
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all things considered, we are in early stage of explosive boom. fed rate hiking tries to make it stable boom. things look great
jason xx
jason xx Jul 03, 2022 8:53AM ET
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Bullard says we are in early innings of expansion
DEBJANI RAUT
DEBJANI RAUT Jul 02, 2022 2:44PM ET
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Economy is in poor health, every general people are suffering, cost of living is so high but few businessmen are getting richer and share market operators are playing foul with market be it DAX, FTSE, DOW, NASDAQ, NIFTY, SENSES, IBEX 35, NIKKEI OR any other and actually people are going to be trapped. As per present economic conditions Nifty should be around 12000 but now approaching 16000, S&P should be 3000 but 3800, DAX should be 10000 but 13000, NIKKEI should be 20000 but 25000, NASDAQ should be 8000 but 11000 etc etc because vc funds are doing manipulation of market worldwide. General investors should be temporarily away from market and keep a watch on this.
Trend Follower
Trend Follower Jul 02, 2022 12:56PM ET
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inflation has been hidden with voodoo economics for decades since Reagan era, now inflation has ballooned so large that you can no longer hide it.  Welcome to fantasy island!
DEBJANI RAUT
DEBJANI RAUT Jul 02, 2022 12:56PM ET
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When you will take a loan of 2000 $ from bank they will force you to repay with high interest and within scheduled time but when one big businessman defraud bank $60m, bank officials will did meeting to waive of the loan interest or turn it as bad debt non recoverable loan to save the defaulters.
Nick Leeds
Nick Leeds Jul 01, 2022 6:14PM ET
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I heard air travel now predicted to be strongest since 2000 hardly a recession I'd people spend a minimum of $1000 on 4th of July weekend which you get to quickly from airfare, rental car and hotel /motel
Al Ose
Al Ose Jul 01, 2022 6:14PM ET
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Will fall off a cliff. Just pent up vacation demand from pandemic that will tank
Trend Follower
Trend Follower Jul 01, 2022 6:14PM ET
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Depends what people you're talking about. Most people have seen their savings being almost wiped out by fuel and food rising transitory inflationary prices as Powell would say, two essentials for survival in the USA.
DEBJANI RAUT
DEBJANI RAUT Jul 01, 2022 6:14PM ET
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All such news are planned circulation of fake news by vc funds who are heavily invested in airlines stocks. Look at their balance sheets, majority of them are bleeding heavily.
Steve Bojo
Steve Bojo Jul 01, 2022 6:14PM ET
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🤣🤣🤣🤣
 
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