Based on a variety of data that have come out after the first estimate of Q1 US growth at 1.3% it is now likely that US growth in Q1 was actually below 1% (probably close to 0.7%); we are thus already into a “growth recession” territory. As discussed extensively in this blog a US hard landing can take two forms: a “growth recession” i.e. a period of time when growth is well below potential and in the 0% to 1% range; or an outright recession, i.e. two consecutive quarters of zero growth.
If Q1 growth turns out to be below 1% (as now likely) we would already be in growth recession range in Q1. The revisions of Q1 GDP growth that will push the revised estimate of Q1 growth rate below 1% are:
- Lower change in inventories than initially estimated reducing Q1 growth
- Better construction spending than initially estimated increasing Q1 growth
- Much worse trade balance in March than initially estimated reducing Q1 growth
The net effect of these three factors is an estimated 0.7% growth for Q1 (JP Morgan today revised its Q1 estimate downward to 0.8%).
Much more seriously, Q2 started on a very weak note for private consumption based on initial estimates of retail sales. I now expect Q2 growth to be closer to 0% or even negative (i.e an outright recession).