Several economists took the knife to their second-quarter GDP forecasts following a disappointing consumer spending report that added to concerns about a slowdown in the US economy.
Some forecasters even think the world’s largest economy will contract for a second consecutive quarter, crossing the threshold of a technical recession.
Personal consumption rose 0.2 percent in May, the Commerce Department reported Thursday, missing economists’ expectations for a 0.4 percent increase. That represented a drop from the downwardly revised 0.6 percent increase in April, suggesting that spending was weaker in those months than previously thought.
A revision on Wednesday of the first-quarter GDP report showed that personal consumption rose just 1.8% in the first three months of the year, compared with earlier reports of a rise of 3, 1%
Weaker real consumption data in the spring and upward revisions to first-quarter inventories in the GDP report led Goldman Sachs to cut its second-quarter GDP estimate by 1 percentage point to a increase of only 1.9 percent. Second-quarter personal consumption is now expected to rise just 1.6% compared to previous estimates of 2.3%.
Capital Economics now estimates that consumption will rise by just 0.8% annualized in the second quarter, compared with its previous forecast of almost 3%. Its GDP forecast has been cut to 1% annually, from previous estimates of 2.7%.
Similarly, the Federal Reserve Bank of Atlanta’s GDPNow tracker now points to a 1% contraction in GDP in the June quarter.
Pantheon Economics lowered its GDP estimate and now expects a 0.5% drop in the second quarter.
“All the decline will be in the inventory numbers,” said chief economist Ian Shepherdson. It expects final domestic demand to rise just 1.5% in the second quarter, compared with 3% in the first three months of the year.
“The markets and the media will call two-quarters of the decline in overall GDP a recession [National Bureau of Economic Research] it won’t because payrolls have continued to rise strongly,” Shepherdson said, referring to the research organization that determines whether the economy has officially entered a recession.