Pollack: Optimism and concern

The Monday Morning Quarterback
A quick analysis of important economic data released over the last week

By Elliot D. Pollack & Co | Rose Law Group Reporter

With the report of negative U.S. GDP growth of -1.4% for the first quarter of 2022, the Blue Chip Economic Panel lowered their GDP forecast for all of 2022 to 2.6%, followed by a 2.1% growth rate for 2023. The panel remains optimistic that growth will rebound in the last three quarters of this year, since the core growth categories were positive in the Q1 release.

The concern of a pending “recession” is on the mind of many consumers and businesses and the stock market has become bearish in recent weeks. However, consumer spending and business investment is still growing. Certainly, a quarter of negative GDP growth is startling. Last month, the Blue Chip Economic Indicators panelists, while not projecting a strong gain, did look for a modest 0.9% growth rate. So, the contraction of 1.4% was not overly dramatic. And core growth categories were positive. Consumer spending went up at a 2.7% pace and business fixed investment rose at a 9.2% annual rate. Even business inventories, which were partly responsible for the negative total growth, still rose at a $158.7 billion annual rate. Other negatives were exports and government purchases of goods and services. Recessionary conditions are not indicated by these metrics since domestic demand has held up reasonably well.

For 2022, the Blue Chip panel projects GDP will climb by 2.6%, less than the April forecast of 3.2%. For 2023, growth is expected to be 2.1%, just below April’s 2.3% projection, with growth in individual quarters hovering at or just below a 2% annual pace. Thus, growth is mediocre, but the U.S. economy is hardly seen to be in a recession. The Blue Chip panel sees the probability of recession this year at 26% and at 39% next year

Inflation, however, is more serious and forecasted at 6% for this year (annual average). The Blue Chip panel inflation forecast is up from 5.5% in the April forecast. The 6% pace would be the highest since 6.2% in 1982, 40 years ago. The personal consumption expenditure price index, the measure emphasized by the Federal Reserve in managing monetary policy changes, is forecasted at 5.8% this year, up from 5.7% forecast last month and the highest since 9% in 1981.

There is much risk and uncertainty in the economy, and we will likely be living with these circumstances for the remainder of this year and longer. Conditions in the U.S. are most unusual with a strong job market, high inflation, twice the number of available jobs than unemployed persons, rising interest rates, an unprovoked war, and a no-COVID policy in China that is disrupting supply chains again, among a variety of other economic and geopolitical forces. We will continue to closely monitor the situation as data and indicators become available.

U.S. Snapshot:

  • The first half of May reversed the gains of the University of Michigan’s Consumer Sentiment Index last month. The index declined from 65.2% in April to 59.1% in May. The level in March was 59.4%. The index reflects the decline in consumers’ assessment of their current financial situation.
  • The inflation growth rate was down for the month from 8.5% to 8.3% in April. While this was expected, April’s rate was above expectations of 8.1%. Core-CPI was up 6.2% for the year.

Arizona Snapshot:

  • March’s total taxable sales for the state were up 14.2% from a year earlier with retail sales increasing 10.6%. Similarly, Maricopa County retail sales were up 11.6% and total sales were up 15.7%.
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