Morning Report: The Atlanta Fed’s GDP Now Index sees negative growth in Q2

Vital Statistics:

S&P futures3,777-49.55
Oil (WTI)106.44-1.94
10 year government bond yield 2.82%
30 year fixed rate mortgage 5.66%

Stocks are lower this morning as investors fret about growth going forward. Bonds and MBS are up again.

The big event this week will be the jobs report on Friday. The Street is looking for 270,000 jobs and for unemployment to remain at 3.6%. We will also get the ISM Services Report which will be a bellwether for the state of the economy.

The data last week has pushed the Atlanta Fed’s GDP Now forecast to -2.1%. This would mean negative GDP growth for the first half of 2022.

This would typically mean we are in a recession. That said, the government and the chattering classes are pushing back against that definition. The government changed the definition of a recession from 2 consecutive quarters of negative GDP growth to something more subjective: “In general usage, the word recession connotes a marked slippage in economic activity. While gross domestic product (GDP) is the broadest measure of economic activity, the often-cited identification of a recession with two consecutive quarters of negative GDP growth is not an official designation. The designation of a recession is the province of a committee of experts at the National Bureau of Economic Research (NBER), a private non-profit research organization that focuses on understanding the U.S. economy.” 

What this means is that even if we get a negative GDP print in the second quarter, the government and the business press will insist we are not in a recession. They will use the low unemployment rate as the reason. That said, the National Bureau of Economic Research generally gets around to calling something a recession after it is over.

Regardless of whether the government determines we are in a recession or not, the yield curve is definitely giving clues that we are headed towards one. The slope of the yield curve (i.e. the difference between short term rates and long term rates) is often a pretty solid indicator of an impending recession. Here is a chart of 2s-10s going back to the 1970s:

The shaded lines indicate an official NBER recession. You could make the argument that this indicator has lost value in a QE world, and you would be 100% correct. That said, the indicator is flashing a warning sign for growth.

The problem for the Fed is that interest rates are still highly negative on an inflation-adjusted basis. The Consumer Price index is running over 8% and the PCE Index is running at a 4.7% rate ex-food and energy. So, even though the Fed is being aggressive in hiking rates, overall monetary policy remains highly accommodative.

18 Responses

  1. Spent the fourth of July camping. One thing I noticed was a lot more RVs than normal. I guess people spent a lot of money during COVID.


  2. This guy use to have some interesting insights (he’s the “Blue Wall” guy), but has really spiraled down.

    Unfortunately, I think he’s more representative of the progressive mindset these days than I would like to believe.


  3. This should be amusing:

    “Republican states are trying to use federal covid aid to cut taxes

    In Florida and elsewhere, GOP leaders have sued to tap pandemic funds for tax cuts, defying the Biden administration

    By Tony Romm
    July 5, 2022 at 6:00 a.m. EDT

    As gas prices climbed toward record highs this May, Florida Gov. Ron DeSantis (R) secured a pause on the state’s fuel taxes — a $200 million plan he helped pay for with a pot of federal funds awarded earlier in the pandemic.

    The policy was intended to save money for local drivers and state coffers alike. But it also appeared to mark a potential violation of federal law — and the latest skirmish in an escalating clash between GOP officials and the White House over how states can use generous federal stimulus dollars.”

    This is exactly what DeSantis should put in a campaign ad.


  4. Interesting piece:


    • It lives and breathes. What more vision do they need?


      • Deep down Ezra actually gets it.

        “But I think they have absorbed quite deeply the critique of originalism, which is that without some binding interpretive methodology, all you’re doing is reading your own values into the Constitution. You’re simply playing Calvin Ball with the nation’s founding document.”

        He just doesn’t like the results.

        Scalia was right about the virtues of originalism, even if he didn’t consistently practice it:

        “”My burden is not to show that originalism is perfect, but that it beats the other alternatives, and that, believe me, is not difficult,” Scalia said.”


      • This quote is revealing:

        “So in the notion that you can look at this single piece of the puzzle and say that’s what we’re going to do today, that’s not any kind of fidelity or truth to the original — when context changes, the meaning of the thing itself changes. “

        Try as they might, the “living Constitution” is nothing but Calvinball all the way down.


  5. Bad news for those hoping the pro-choice Kraken got unleashed by Dobbs. Even “I don’t know” beats out abortion on a list of most important voter concerns.


    • Not for lack of trying on the part of the media.

      See also:


      • We’re probably going to get a negative GDP print for Q2 (which meets the classic definition of a recession) the day after the Fed hikes 75 basis points.


      • First reply!

        But why show a picture of Biden with this? I think it’s on the wrong track, too, but mostly because of anti-American Republicans and the MAGA menace that just won’t shut the fuck up.

        People including Democrats think the nation is on the wrong track because MAGA!


        • “won’t shut the fuck up.”

          these dipshits have zero self-awareness.


        • Exactly. I’m entirely aware when I won’t shut the fuck up. If I were saying that about the left, I’d complain that “and they won’t shut the fuck up. Like me.” You know, show some humility in there while doing a lot of overly-broad, non-specific, zero-solution finger-pointing. As I sometimes do.


  6. One can only imagine the reaction if this was being done by the Republican side vis-a-vis Russia.


  7. Sure, ok.


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