Wait, Are We Already In A Recession?

Wait, Are We Already In A Recession?
Stéphane Renevier, CFA

over 1 year ago1 min

The U.S. Gross Domestic Product (GDP) is the official measure of the growth rate of the biggest economy in the world. But it’s not the only one worth watching: GDP’s significant lag means investors never really know what’s going on right now, so The Atlanta Fed has come up with a much timelier measure. That solution – the GDPNow indicator – attempts to estimate the economy’s growth rate in real time, and that’s what the green line above is showing.

Thing is, what it’s showing is worrying: the indicator forecasts that GDP will contract by -1.6% in the second quarter of this year. And since that would follow the first quarter’s contraction of -1.6%, it would mean the economy’s technically already in a recession – often defined as two consecutive quarters of GDP contraction.

Even more worrisome is the fact that this seems sharply at odds with what the consensus (blue line) expects: a positive GDP growth between 1.5% and 2%. The Federal Reserve forecasts a positive GDP growth of 1.7% by the end of 2022 too, and you don’t need to be a math genius to know that the economy will need to post a serious rebound to meet those lofty expectations. And while the recent stock market rally suggests that investors are expecting that rebound, you might want to prepare yourself for some negative surprises. It’s better to be safe than sorry, after all.

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