Recession Virtually Assured -- March 4, 2016; To Get There, We Need That "First" Quarter Of Negative Growth

Updates

March 9, 2016: GDPNow's latest forecast -- 2.2% for 1Q16 (estimate)

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 2.2 percent on March 9, unchanged from March 4. 

The forecast for the contribution of inventory investment to first-quarter real GDP growth declined from -0.28 percentage points to -0.33 percentage points after this morning's wholesale trade report from the U.S. Census Bureau. This update also incorporates data on imports and exports of services in January from last Friday's international trade report not included in the previous GDPNow update. This caused the contribution of net exports to first-quarter real GDP growth to increase from -0.35 percentage points to -0.31 percentage points. 

Original Post

Apparently "the impending recession" is the story of the day over at CNBC. I see those stories all the time over at CNBC so I generally take them with a grain of salt. I can't do much about recessions anyway (though I do buy stuff I don't need at Walmart to to do my part to keep the US economy humming). There are some silver linings in a recession, so, for me, it's generally a wash, as they say. But, be that as it may, I was surprised to see that "recession" talk in this article from Rigzone on cheap gasoline. Reading an article on cheap gasoline I certainly did not expect to see this:

Noting that cheap fuel "absolutely" benefits the economy, Holt contends that two factors have nonetheless diminished its positive impact. 

First, a "convoluted, inconsistent" regulatory regime has made the U.S. energy market among the world's least predictable, he said. "That unpredictability does trickle down" in the form of price complications in the energy market that affect other sectors of the economy.

In addition, the U.S. economy has sunk into a recession or is on the verge of doing so. 

"What you're seeing now is a downturn in commodity sectors," he said, adding that consumer demand is not as robust as it could be. Two gauges of consumers' attitudes about the economy – one from The Conference Board and another from the University of Michigan – underscore Holt's concerns about demand. 

"With reduced prices for consumers, theoretically every household gets, say, $2,000 more in their pockets every year," Holt said. "You'd think that money's getting spent, but with the high levels of unemployment and underemployment it's not having the same economic effect as it has had in the past." 

Further stifling consumer demand is a faltering upstream oil and gas sector, which for much of the past decade has stood out by exhibiting robust growth, added Holt. "Now that oil and gas is in a downturn, that's probably contributing to the lower benefit (of cheaper energy) to the broader economy," he said.

I posted more than I had originally planned to post. This is what caught my eye: The U.S. economy has sunk into a recession or is on the verge of doing so.

But again, the $2,000/year does not even come close to off-setting the $1000/month extra folks are paying for ObamaCare.

Bottom line: if one is into playing the odds in Las Vegas on whether this prediction comes true, what is the next data point to watch for? A: whether the Fed raises the "rate" in March.

If the Fed raises the rate in March, this tells me the Fed is not worried about a recession now or in the near future (or wearing rose-colored glasses). If the Fed does not raise rates in March it does not say the opposite. Not raising rates will be a red flag but not necessarily because they are concerned about a recession.

The generally accepted definition of a recession is two consecutive quarters of negative growth. We haven't had the first one yet. The GDPNow forecast as of today:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 2.2 percent on March 4, up from 1.9 percent on March 1. The forecasts for real consumer spending growth and real gross private domestic investment growth increased from 3.1 percent to 3.3 percent and -0.4 percent to 0.8 percent, respectively, after this morning's employment situation release from the U.S. Bureau of Labor Statistics.

This was partly offset by a decline in the contribution of net exports to first-quarter real GDP growth from -0.26 percentage points to -0.35 percentage points following this morning's international trade report from the U.S. Census Bureau.

As noted in an earlier blog, the payroll "surge" as reported by the government is offset by fewer working hours/employee and an actual decline in hourly wages.

So, time for a new poll. But first the results of the two current polls.

The results of the first poll in which we asked whether all GOP presidential candidates except Trump and Cruz should now drop out of the race:

• yes, everyone should drop out except the two crazy ones: 26%
• no, everyone should stay in to confuse the low-information voters: 35%
• everyone should drop out except Trump; move immediately to the prize fight, Hillary vs Trump: 15%
• everyone but Cruz should drop out; only Cruz can beat Hillary: 9%
• hold out for Senator John Hoeven at a brokered convention (that does not sound as strange as it seems): 15%

The results of the second poll in which we asked: if the conventional fails to select a nominee on the first vote, is a late run by Romney viable?

• yes: 15%
• no: 85%

Now for the new poll: will the Fed raise rates in March, 2016? Yes or now.

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My Alma Mater

USC tuition will top $50,000 /year for the first time this next academic school year.