Only a minority of economists correctly predicted that the US economy would contract in the last quarter. The number of those who expect it to continue to decline in the current period is even smaller.
Gross domestic product fell for a second consecutive quarter in the April-June period, the government reported last week, sparking a debate over whether the United States is in a recession. The 0.9% decline from a median growth forecast of 0.4% in the Bloomberg Survey of Economists.
For the current period, economists are more optimistic – the median expectation is for 1.7% growth – and there are fewer negative numbers in the survey, with just five out of 55 respondents anticipating another contraction.
Yet the pessimists were right last time around. Here’s why the five most gloomy forecasters in Bloomberg’s survey expect the US economy to continue to contract.
“The mix of composition bothers us,” says Michael Gapen, the new US chief economist at Bank of America. He expects GDP to fall by 0.5% this quarter, followed by further contractions through early 2023.
The shock to real income that consumers have suffered, as inflation raises the cost of non-discretionary items such as food and energy, is weighing on confidence, Gapen says.
“Of course, we’re in a recession,” says John Dunham, managing partner at research firm John Dunham & Associates. He expects a “shallow recession” to continue until at least next year, with a variety of factors sapping the momentum of the US economy.
“Inflation is expected to remain at elevated levels for the foreseeable future and could worsen depending on international relations, US fiscal and monetary policy and regulatory policy which appears to be worsening,” Dunham said.
Disappearance of savings
Academic economists point out that the negative GDP reading for the second quarter is a forward estimate that is very likely to be revised.
But UCLA Anderson Forecast’s Leo Feler says “the combination of higher interest rates and lower consumer demand is what I think could trigger an additional, broader contraction in the economy down the road. this year and in early 2023”.