US: GDP contracts by 0.6% for 2Q22

Real gross domestic product (GDP) contracted by 0.6% YoY in 2Q22 after falling 1.6% in 1Q22. The 2Q22 decline was revised up 0.3 points from the initial forecast published in July. The smaller decline in 2Q22 compared to 1Q22 primarily reflected an increase in exports and a smaller decline in federal government spending.

If we look at the sub-items; The revision in consumer spending is upwards, there is a 0.5 point increase towards 1.5% in the second reading. The revision in demand for goods indicates a contraction of 2.4%, but only 0.1% on the durable goods side, with most of the impact coming from the non-durable goods group. Consumer spending was likely weak in July as well, but retail sales data provide an encouraging signal for 3Q22 GDP to recover as lower gasoline prices give consumers some relief. The growth in services continues to make a positive contribution, with the 2Q22 revision pointing to an above-the-headline performance of 3.6%.

On the fixed investments side, a 4.5% contraction is observed in 2Q22. While housing investments point to a 16.2% contraction, there is a 13.2% contraction in infrastructure investments. In an environment where interest rates and costs are increasing, construction-related items are declining. Corporate profits, on the other hand, increased by 6.1% QoQ in 2Q22, after falling 2.2% in 1Q22. The decrease in productivity and the increase in unit labor costs force businesses to reduce costs as their profitability weakens. Strong labor market conditions still keep recession forecasts below a threshold, but the market will begin to weaken as businesses freeze hiring or cut headcount. Forecasts of recession in the 12-24 months future are still heavy.

Real gross domestic income (GDI) increased by 1.4% in 2Q22, compared to a 1.8% increase in 1Q22. The average of real GDP and real GDI, a complementary measure of US economic activity that gives equal weight to GDP and GDI, increased 0.4% in 2Q22 compared to a 0.1% increase in 1Q22.

GDP growth continues to contract for two consecutive quarters in 2Q22 for the first time since the Covid-19 recession. But even with two consecutive quarters of negative growth, the views that the economy is in recession do not outweigh the net.

According to other published data, in the week ended August 20, seasonally adjusted initial jobless claims were 243K, down 2K from the previous week’s revised level. The previous week’s level was revised down by 5K from 250K to 245K. The 4-week moving average is 247K, up 1,500 from the previous week’s revised average. The previous week’s average was revised to 245,500 from 246,750 to 1,250.

Unemployment claims continue to show that businesses want to retain workers. The latest data on jobless claims show that the economy still has enough momentum for higher interest rates for the Fed. But with increasing economic uncertainty, US companies may consider freezing hiring and laying off during the current crisis. Slower job gains will make the labor market less supportive of economic growth.

If we look at the Fed’s point of view; The July FOMC minutes noted that “labor demand-supply imbalances may be decreasing, firms are more successful in hiring and retaining workers, and are under pressure to raise wages.” It is still unclear whether the Fed’s tightening will cause a recession, but the more momentum the economy points to in these conditions, the more likely it will stay in growth zone when there is a slowdown. Therefore, it is important that the economy can handle high rates. In contrast, it is very unlikely that Powell will dovish-talk tomorrow. The Fed chairman will not give a signal that will change the short-term rate path. In this regard, the employment and CPI reports for August, which will be announced before the September FOMC meeting, will be more informative about the size of the next rate hike. July personal income and spending data will also be released tomorrow, which should show growth adjusted for inflation (in real terms, not nominal) for 3Q22 GDP recovery prospects to remain intact.

Kaynak: Tera Yatırım- Enver Erkan
Hibya Haber Ajansı