This is Alarming : What Await Us This week?
image source : https://unsplash.com/
Finally we have a big catalyst coming this week which is on wednesday and that is the next GDP report. Right now we're in the situation where you're still going to see data before the fed started meaningfully tightening financial conditions and most of the impact of fed policy doesn't have a huge impact on main street until maybe a couple quarters down the road ,usually about six months down the road.
But the economy is already eating itself from the inside because of rising costs.
image source: https://bit.ly/3xZDUDK
If you look at the last report on Q1 you had a 1.5 contraction. This was supposed to be a growth quarter most of wall street thought this would be a growth quarter, but it contracted and outside of omicron which did weigh down things on that quarter.
The forces that drove q1 should only be more present in Q2 and covid it might not be a big thing right now to freak out about covid, but obviously in china which is a big global economy player it is a big deal.
Because they're closing things down for two people sneezing and pricing pressures here at home have gotten worse in pretty much every single category. Which has eaten into a lot of ability to actually produce, ability to actually spend on things that aren't essential and so on and so forth.
source: https://www.atlantafed.org/cqer/research/gdpnow
Predictions while the atlanta's branch gdp now tracker is projecting flat 0.0 growth as of June 16th and a lot of wall street analysts are expecting and thinking this is going to be an expansionary quarter.
image source : https://bit.ly/3bw511O
Expecting a bounce back to 1.9 percent up others expect as high as 2.3, i think that a lot of projections were very very high coming into january of 2022 and a lot of analysts haven't wanted to 180 on their clients.
So they've artificially kept their ratings really high and they're just going to slowly downgrade it as time goes on.
But to understand GDP and to really understand what's going into this number that you're going to hear this week this is the formula for GDP.
GDP : private consumption + gross private investment + government investment + government spending + exports – imports.
So if you have more imports then you have exports it becomes a negative number if it's more exports than imports it becomes a positive
For Q2 for example, we already know that consumers were relying more heavily on depleting savings to keep up consumption past inflationary pressures.
So that's already curved in the positive favor we know that private investment is down in the case of government investment, and spending you've actually seen a dramatic drop year over year because of failures to push through different spending packages, and the expiration of covet programs.
But quarter over quarter that isn't going to look like very much so you're not going to see the huge deceleration from that category and then you have the trade deficit ,which actually is decreasing right now because of record exports and production shutdowns in places like China.
That should actually be positive for the overall calculation as well. So, you actually have a lot for this GDP calculation that is going to be curved in the favor of it being positive.
If we do see a contractionary quarter, you know things have gotten bad
At the end of the day GDP is GDP and if we get two quarters of contracting GDP, that's considered a recession.
But i think that where the market's really going to be scared in terms of a recession is when you actually start seeing the companies that the market tracks report not just one quarter of lowering guidance, but a quarter where they're actually reporting really bad numbers, and they're still expecting another quarter of bad numbers and a worsening situation earnings recession in companies is going to be far more scary for the market than a GDP.
