Economic Recession in the Second Quarter of 2024 Appears More Probable

A Peak in the Economy

Observing the trends in consumer expenditure, housing starts, new home sales, and GDPNow, it seems that the economy has reached its peak. However, it's important to note that my predictions tend to be a bit premature.

The GDPNow forecast has been on a downward trajectory since reaching a high of 4.2 percent on May 8, 2024. It's crucial to focus on Real Final Sales (RFS) rather than the overall forecast, as the rest is merely inventory adjustment that balances out over time.

Balance of Trade

On May 30, I predicted that the balance of trade would impact the GDPNow forecast. This prediction was confirmed on June 1 when I noted the soaring US trade deficit's effect on the Atlanta Fed GDPNow forecast. By June 3, the GDPNow forecast had taken another hit.

GDPNow Contributions

On May 31, the Advance Economic Indicators, particularly import-export data, caused the Net Exports contribution to GDP to drop from -0.06 to -0.60. On the same day, Personal Income and Outlays reduced the contribution for Personal Consumption Expenditures (PCE) from 2.28 to 1.75.

ISM Manufacturing New Orders and Backlogs in Steep Contraction

On June 3, I noted that the Manufacturing ISM had been in contraction for 16 months, briefly turned positive for a month, and then started contracting again for two months, with order backlogs falling for 20 months.

June 3 Impact to GDPNow

The ISM and construction spending reports on June 3 had a significant negative impact on PCE, with lesser negative impacts on Residential Investments, Equipment, and Net Exports. However, it's important to remember that what matters is not the reports themselves, but how they compare to what GDPNow expected.

Below Stall Speed

With Real Final Sales at 1.3 percent, the economy is at stall speed. However, it remains to be seen whether it will stay there. Real (inflation-adjusted) income and spending were negative in April, with real income being negative in two of the last three months.

Personal Income Four Ways

Real Disposable Personal Income (after taxes) has stalled. This is one of the reasons why consumers are angry and it's reflected in the polls. Despite this, many economists and political figures still believe the economy is performing well.

More Soft Economic Data, Q1 GDP Revised Lower, Q4 GDI Significantly Lower

The economic slowdown continues, led by income and consumer spending. This pattern is repeating in April.

Revisions a Hallmark of Economic Turns

Over the past two years, whenever one segment of the economy misfired, another picked up. However, it now appears that the economy is misfiring on multiple fronts simultaneously.

Is the US in Recession Now? Two Prominent Competing Views

On May 28, I discussed whether the US is currently in a recession. Danielle DiMartino Booth believes that the US has been in a recession since October, while Jim Bianco disagrees. I also explained why I think a recession is likely.

Tax Cuts Explain Surge in Consumer Spending in 2023

On January 29, 2024, I noted that tax cuts, not Bidenomics, explained the surge in consumer spending in 2023. On January 1, 2023, 38 states implemented significant tax changes, most of which put extra money in people's pockets.

The GDPplus Indicator

The GDPplus is a method used by the Philadelphia Fed that blends GDP and GDI. The Philadelphia Fed significantly lowered the indicator on Thursday. It's also a very good predictor of recessions.

Final Thoughts

Data is now weakening so quickly, on so many fronts, that I expect a recession this year. Judging from the recent slide, and assuming it continues, the economy may have peaked in April with a recession starting in May.

It's a thought-provoking situation to consider, isn't it? What are your thoughts on this matter? Feel free to share this article with your friends and engage in a discussion. Also, don't forget to sign up for the Daily Briefing, which is everyday at 6pm.