WASHINGTON- US economic growth likely rebounded moderately in the second quarter as companies boosted exports and maintained a strong pace of spending on equipment, which could assuage financial market fears that the economy was already in recession.
The Commerce Department’s advance second-quarter GDP report on Thursday will, however, still show that the economy was losing momentum because of high inflation that has prompted the Federal Reserve to aggressively tighten monetary policy.
“The economy is still doing okay,” said Brian Bethune, an economics professor at Boston College. “It is not as strong as it was in 2021, but we are not in a recession.”
According to a Reuters survey of economists, GDP growth likely rebounded at a 0.5 percent annualized rate last quarter. Estimates ranged from as low as a 2.1 percent rate of contraction to as high as a 2.0 percent growth pace.
The survey was, however, conducted before data on Wednesday showing the goods trade deficit in June was the smallest in seven months and shipments of non-defense capital goods excluding aircraft increased strongly.
The reports prompted JPMorgan to upgrade its second-quarter GDP growth estimate to a 1.4 percent rate from a 0.7 percent pace. Goldman Sachs raised its forecast by 0.6 percentage point to a 1.0 percent rate. Several other Wall Street banks also boosted their estimates. The Atlanta Fed lifted its estimate by four-tenths of a percentage point to a still negative 1.2 percent rate.
A slew of soft housing data as well as weak business and consumer sentiment surveys had heightened expectations for a second straight quarterly negative GDP reading. The economy contracted at a 1.6 percent pace in the first quarter.
The White House is vigorously pushing back against recession chatter as it seeks to calm voters ahead of the Nov. 8 midterm elections that will decide whether President Joe Biden’s Democratic Party retains control of the US Congress.
Treasury Secretary Janet Yellen is scheduled to hold a news conference on Thursday to “discuss the state of the US economy.”
Another decline in GDP would meet the standard definition of a recession. But the National Bureau of Economic Research, the official arbiter of recessions in the United States defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.”
Job growth averaged 456,700 per month in the first half of the year, while industrial production increased at a 6.1 percent rate in the second quarter. But homebuilding has softened.
“While the relevant economic indicators look mixed, we don’t think the NBER will feel the need to characterize the first half of the year as a recession even if GDP contracted across the first two quarters of 2022,” said Daniel Silver, an economist at JPMorgan in New York.
Slowing growth, however, could encourage the Fed to step back from hefty interest rate increases, though much would depend on the path of inflation, which is way above the US central bank’s 2 percent target.
The Fed on Wednesday raised its policy rate by another three-quarters of a percentage point, bringing the total interest rate hikes since March to 225 basis points. Fed Chair Jerome Powell acknowledged the softening economic activity as a result of tighter monetary policy.
A smaller trade deficit, thanks to record exports, is expected to have added as much as 1.5 percentage points to GDP growth last quarter. That would end seven straight quarters in which trade was a drag on growth. — Reuters
