U.S. 2Q GDP Review: Is the U.S. currently in a recession?

If you like this article, please give us a like and subscribe to 'wise shark' to get the latest information from the research report.

Following the 1.6% YoY decline in Q1, 22Q2 U.S. GDP fell again by 0.9% YoY, below market expectations of +0.5%, triggering a debate on "whether a recession is coming". Looking back at previous recessions, two consecutive quarters of negative GDP growth is sufficient but not essential for a recession. However, given the current robust employment data and overall economic conditions, many believe that a recession has not yet arrived.

Inventory change is the biggest drag on GDP growth, with all three major producers (manufacturers, wholesalers and retailers) slowing down significantly in the rate of inventory accumulation. Except for motor vehicles, the industry-wide inventory buildup has already occurred and a "de-stocking" cycle may start.

The impact of rising interest rates on investment begins to emerge, with residential investment being the main drag (the pull fell sharply from 0.02% to -0.7% QoQ). The two leading factors of the previous real estate boom are gradually reversing - the cooling demand for home offices and the expected further impact of rising interest rates on home purchase demand. Current U.S. new and used home sales have fallen back to 2019 levels, and the housing market sentiment index is also down significantly. Lower loan costs and weakening demand for home offices will likely put continued cooling pressure on U.S. residential investment.

Service consumption continued to strengthen in the second quarter, while both durable and non-durable goods pull turned negative. The pillar of U.S. consumption has switched from goods to services, so the resilience of U.S. consumption will depend on services consumption.

Current non-farm payrolls are still close to a 0.3% shortfall compared to the pre-epidemic, and the unemployment rate has remained at 3.6% for four consecutive months, which is at its lowest level since March 2020. Reviewing previous recessions, the unemployment rate is often a strong indicator of the recession cycle. It often takes a few months after the unemployment rate inflection point to enter a recession.

The relative health of private sector balance sheets compared to previous recessions has contributed to the resilience of the economy. While overall debt has expanded slightly, the increase is mainly in high-quality home mortgages, and the probability of a large number of serious defaults is low in the near term.