JPM Warns US "Perilously Close To Recession" As Atlanta Fed Slashes Q2 GDP To -2.1%

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by Tyler Durden
Friday, Jul 01, 2022 - 06:20 PM

This week has seen investors shift from inflation anxiety to recession fears as stocks have been hammered and bonds bid (along with rate-hike expectations tumbling).

The continued erosion in economic data has prompted The Atlanta Fed to slash its forecast for Q2 GDP growth to -2.1% meaning the US is now technically in recession (after Q1's confirmed 1.6% contraction yesterday).

The GDPNow model estimate for real GDP has collapsed in recent days, growth in the second quarter of 2022 has been cut to a contractionary -2.1%, down from -1.0% on June 30, down from 0.0% on June 15, down from +0.9% on June 6, down from 1.3% on June 1, and down from 1.9% on May 27.

As the AtlantaFed notes, "The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is -2.1 percent on July 1, down from -1.0 percent on June 30. After this morning's Manufacturing ISM Report On Business from the Institute for Supply Management and the construction report from the US Census Bureau, the nowcasts of second-quarter real personal consumption expenditures growth and real gross private domestic investment growth decreased from 1.7 percent and -13.2 percent, respectively, to 0.8 percent and -15.2 percent, respectively."

In short: the US consumer is getting tapped out, just as we have been warning repeatedly.

Which also fits with Jamie Dimon's recent "downgrade" of the economy from "storm clouds" to "hurricane"... and also makes some sense given the recent collapse in macro data relative to expectations...

And longer-term, the trend towards stagflation could not be clearer...

The Atlanta Fed's recession forecast coincides with JPMorgan's economists cutting their US mid-year economic growth forecasts after an influx of weaker data this week - most notably a slowdown in consumer spending. The Wall Street bank reduced its estimate for annualized gross domestic product growth to 1% for the second quarter, down from 2.5% previously. This quarter is also seen at 1%, down from 2%. Growth will tick up to 1.5% in the final three months of the year, helped by stronger car production and lower inflation, the bank’s economists said.

“Our forecast comes perilously close to a recession,” Michael Feroli, JPMorgan’s chief US economist, wrote in a note Friday. “However, we continue to look for the economy to expand, in part because we think employers may be reluctant to shed workers, even in a period of soft product demand.”

This call comes a day after Nomura called for a Global Recession.

And now even Larry Summers believes there’s an increasing risk the looming recession he’s anticipated will start sooner, in 2022...

“The risks of a 2022 recession are significantly higher than I would have judged six or nine weeks ago,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin.

“If the economy did go into recession in the next six to nine months, then you’d probably see a reduction in inflationary pressures.”

This is increasingly problematic for The Fed, as the market is now betting Powell and his pals won't get close to hiking as much as they hope...

All of which means The Fed is now hiking rates into a recession...