Fed GDP tracker shows the economy could be on the brink of a recession

Federal Reserve Chairman Jerome Powell testifies during the House Financial Services Committee hearing titled Monetary Policy and the State of the Economy, in Rayburn Building on Wednesday, March 2, 2022.

A Federal Reserve gauge shows that the U.S. economy could be headed for a second consecutive quarter of negative growth.

The Atlanta Fed's GDPNow tracker is now pointing to a 0.9% gain for the second quarter.

The indicator shows that the economy doesn't have much further to go before it slides into a recession after a 1.5% drop in the first three months of the year.

GDPNow uses economic data to project the economy's direction. Tuesday's data, along with other recent releases, resulted in the model downgrading what had been an estimate of 1.3% growth as of June 1.

Personal consumption expenditures, a measure of consumer spending that is responsible for 70% of GDP, saw a cut to a 3.7% gain. Real gross domestic investment is expected to shave 8.5 percent off growth.

An improvement to the trade outlook resulted in a slight increase to the estimate.

The U.S. trade deficit with its global partners fell to $87.1 billion in April, down more than $20 billion from March's record. The Atlanta Fed expects trade to subtract 0.13 percentage points from GDP in the second quarter.

Corporate profit outlooks have been hurt by surging inflation and talk of a recession has accelerated this year. Wall Street is still expecting a resilient consumer and a strong jobs market to keep the US out of a recession.

It looks like any talk of a recession is going to happen in 2020. It is not this year according to Joseph Brusuelas. Future shocks to the business cycle are needed. I think the economy is going to slow but only back to its long-term growth rate of 1.8%.

The idea of two consecutive negative GDP quarters isn't necessarily a recession.

According to the National Bureau of Economic Research, the rule of thumb can sometimes be wrong. The recession of 2020 had negative growth.

A recession is defined by the NBER as a decline in economic activity that lasts more than a few months.

Not all of the recessions identified by the NBER involve two or more quarters of declining GDP. There are many reasons. We don't identify economic activity solely with GDP, but with a range of indicators. The decline in economic activity is considered second.

There has never been a period of consecutive negative-growth quarters that did not lead to a recession.

The Federal Reserve is one of the main sources of inflation fears. Even with policy tightening, Chair Powell sees a good chance of a soft or soft landing.

It will be difficult. It depends on events that aren't under our control. Our job is to use our tools to try to achieve that outcome.

The Treasury Secretary told a Senate panel that bringing inflation down should be our top priority and that attempts to bring down the cost of living are coming from a position of strength.