A Federal Reserve tracker on the country’s economic growth points to an increased likelihood that the US has already entered a recession.
While many economists believed a recession would hit next year, the Federal Reserve Bank of Atlanta’s gross domestic product (GPD) tracker recorded a 2.1 percent decline after a miserable end to the fiscal second quarter on Thursday.
Coupled with a 1.6 percent contraction in the first quarter, the declines fit the definition of a recession, a period of broad-based economic decline characterized by two consecutive quarters of declines in GDP.
“GDPNow has a strong track record and as we get closer to its July 28 release [of GDP estimates] the more accurate it gets,” Nicholas Colas, co-founder of DataTrek Research, told CNBC.
It comes after Wall Street reported big losses on Thursday at the end of the second quarter, with the S&P 500 posting a nearly 21 percent year-to-date loss before staging a small rebound on Friday.
The Federal Reserve Bank of Atlanta’s gross domestic product (GPD) tracker on Thursday saw the country’s GDP fall 2.1 percent, marking another quarter of declines
The S&P 500 posted its worst six-month performance since 1970. The stock index was down nearly 21 percent as of Friday afternoon
The Dow Jones Industrial Average (left) and Nasdaq Composite (right) also posted miserable results for the first two quarters of the year
The Atlanta tracker saw GDP levels fluctuate but held steady throughout April before collapsing in June and hitting 0 percent growth points by June 18.
On June 27, the GDP level entered negative territory, registering a 2.1 percent decline on Thursday.
On the same day, the S&P 500 fell, down 0.88 percent by the close.
The benchmark index went through a somber period that plunged it into a bear market earlier this month, and is now down almost 21 percent for the year. Thursday’s close was the worst quarter since the beginning of 2020 and the worst half-year since 1970.
The Dow Jones Industrial Average is also down 15.36 percent year-to-date, and the Nasdaq Composite is down 23.87 percent.
Stocks staged a small rebound on Friday after the poor results, with the S&P gaining 23 points, or 0.62 percent, before the close.
The Dow Jones was up 0.68 percent, or 209 points, and the Nasdaq was up 1.05 percent.
Rising inflation has been responsible for much of the broader market’s collapse this year, as companies hike prices on everything from groceries to clothing and consumers come under more pressure.
Inflation remains stubbornly high at 8.6 percent and central banks have been aggressively raising interest rates to slow and contain economic growth.
The three major stock indices staged a rebound on Friday after Thursday’s slumps
Federal Reserve Board Chairman Jerome Powell (pictured) said the Fed is likely to hike rates by 0.75 percent in July
The Federal Reserve last week made its biggest rate hike since 1994 in a bid to stem a rise in inflation
Earlier this month, the Fed raised interest rates by 0.75 percent, the largest rate hike since 1994, to a range of 1.5 percent to 1.75 percent. The Fed is expected to hike rates by the same amount in July.
While the measure is likely to lower inflation, it is expected to deliver another shock to the market as analysts at Deutsche Bank, Bank of America and Goldman Sachs all predict the hikes could also lead to a recession.
“The Fed has more aggressively frontloaded rate hikes, terminal yield expectations have risen, and financial conditions have tightened further, now implying a much larger brake on growth — a little more than we think is necessary,” Goldman’s chief economist Jan Hatzius said last week.
However, Federal Reserve Board Chairman Jerome Powell pointed to a strong job market — unemployment is at 3.6%, at a nearly half-century low — noting that most households and businesses had healthy savings.
“Overall,” he said, “the US economy is well positioned to withstand tighter monetary policy.”