Several economists slashed their second-quarter GDP forecasts after a disappointing consumer spending report that fueled concerns about a slowing US economy.
Some forecasters are even assuming that the world’s largest economy will contract for the second quarter in a row, crossing the threshold of a technical recession.
Private consumption rose 0.2 percent in May, the Commerce Department reported on Thursday, missing economists’ expectations for a 0.4 percent increase. That represented a decline from a downwardly revised 0.6 percent rise for April, suggesting spending in those months was weaker than previously thought.
A revision of the first-quarter GDP report on Wednesday showed that private consumption rose just 1.8 percent in the first three months of the year, compared to earlier reports of a 3.1 percent increase.
Weaker spring real consumption data and upward revisions to first-quarter inventories in the GDP report prompted Goldman Sachs to cut its second-quarter GDP estimate by 1 percentage point to an increase of just 1.9 percent. Private consumption is expected to increase by just 1.6 percent in the second quarter, compared to previous estimates of 2.3 percent.
Capital Economics now estimates that consumption will increase at an annualized rate of just 0.8 percent in the second quarter, compared to its previous forecast of nearly 3 percent. Its GDP forecast has been cut to 1 percent annualized from previous estimates of 2.7 percent.
Similarly, the Federal Reserve Bank of Atlanta’s GDPNow tracker now pointed to a 1 percent contraction in GDP in the June quarter.
Pantheon Economics has revised its GDP estimate downward and is now forecasting a 0.5 percent contraction in the second quarter.
“All of the decline will be in inventories,” said chief economist Ian Shepherdson. He expects domestic final demand to grow just 1.5 percent in the second quarter, compared to 3 percent in the first three months of the year.
“Markets and media will call two quarters of falling overall GDP a recession, but this [National Bureau of Economic Research] not because payrolls have continued to rise sharply,” Shepherdson said, referring to the research organization that determines whether the economy has officially entered a recession.