Several economists took the knife to their second-quarter GDP forecasts following a disappointing consumer spending report that added to concerns about a slowing U.S. economy.
Some forecasters even believe that the world’s largest economy will contract for the second consecutive quarter, crossing the threshold of a technical recession.
Personal consumption rose 0.2% in May, the Commerce Department reported Thursday, missing economists’ expectations for a 0.4% gain. That was down from the downward-revised increase of 0.6% for April, suggesting that spending was weaker in those months than previously thought.
A revision to the first-quarter GDP report on Wednesday showed personal consumption rose just 1.8% in the first three months of the year, compared with previous reports of an increase of 3, 1%.
Weaker real consumption data in the spring and upward revisions to Q1 inventories in the GDP report led Goldman Sachs to cut its estimate of Q2 GDP by 1 percentage point for an increase of just 1 .9%. Personal consumption in the second quarter is now expected to rise just 1.6% from previous estimates of 2.3%.
Capital Economics now estimates that consumption will grow only 0.8% annualized in the second quarter, compared to nearly 3% in its previous forecast. Its GDP forecast was cut to 1% annualized from previous estimates of 2.7%.
Similarly, the Federal Reserve Bank of Atlanta’s GDPNow tracker now points to a 1% contraction in GDP in the June quarter.
Pantheon Economics has lowered its GDP estimate and now forecasts a 0.5% fall in the second quarter.
“All the decline will be in the inventory numbers,” said chief economist Ian Shepherdson. He expects final domestic demand to grow only 1.5% in the second quarter, compared to 3% in the first three months of the year.
“Markets and the media will call two quarters of declining overall GDP a recession, but the [National Bureau of Economic Research] it won’t because the payroll has continued to rise sharply,” Shepherdson said, referring to the research body that determines whether the economy has officially entered a recession.