Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 54.76% of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
Important Notice - Fraud awareness
Important Notice - Scam alert
54.76% of retail investor accounts lose money when trading CFDs / Spread betting with this provider.
Important Notice - Fraud awareness
Important Notice - Scam alert
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 54.76% of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
Important Notice - Fraud awareness
Important Notice - Scam alert
The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
ATFX

FCA License No: 760555

ATFX-search-icon
Client Portal
Start trading
rch

Q1 GDP may plummet to 1%, Is the U.S. economy headed for a recession?

Tonight, the market is waiting for the announcement of the preliminary annualized quarterly real GDP of the United States for Q1 2022. Given that the Q4 2021 figure was 6.90%, the consensus analysts’ forecast of 1.00% is a big disappointment for the market.

According to a forecast survey conducted by Refinitiv, the US GDP’s quarterly growth rate may only reach 1% in the first quarter of this year. However, according to the Atlanta Fed's GDPNow model, the US GDP is expected to increase by 1.3% in Q1 2022. What is the reason for such a sharp decline in the U.S. economy’s growth rate? And, what is the future for the U.S. economy?

High inflation continues to weigh on the U.S. economy

The market generally expects a sharp decline in the U.S. economy during Q1; the main reason being that U.S. companies in the fourth quarter of 2021 replenished depleted inventory to meet the strong demand for goods, driving rapid economic growth. However, the impact of a gradual decline in stockpiles during Q1 coupled with the rising COVID-19 infections in the United States at the beginning of this year hampered economic growth. To stop the pandemic’s spread, the United States reinstated some restrictions, which led to a slow down in some economic activities.

Although consumer spending in the United States rose more than expected in January, the ensuing war between Russia and Ukraine led to a sharp increase in global commodity and food prices, hurting supply chains. These combined factors led to rising inflation with a minimal increase in consumer spending in the U.S. in February. In addition, higher spending on services was offset by the lower consumption of other goods amid rising production costs. 

labor bureau

(Source: TRADINGECONOMICS)

In the first quarter of 2022, the U.S. consumer price index rose as the prices of different goods rose to varying degrees. From January to March, the CPI data rose from 7% to 8.5%, the highest inflation level seen in the United States in 40 years. Hence, the sharp decline in the Q1 GDP forecast also reflects the drag on growth from high inflation.

GDP growth in the coming months may remain low since it is possible that U.S. inflation has not yet peaked. According to the latest survey results from the American Business Economics Association, the proportion of U.S. companies that have raised wages in the first quarter reached a record 70%. As a result, companies will pass on the rising costs to consumers in the future, pushing prices much higher. 

As for oil prices, the market saw a surge in the first quarter of 2022 due to market concerns about the shortage of oil supplies exacerbated by the Russian-Ukrainian war. Oil prices broke through $130, which dealt a significant blow to the U.S. economy. However, with the release of crude oil reserves by the United States government and the recent increase in oil production by the United States and OPEC, oil prices have experienced a sharp correction. Furthermore, with the Fed raising interest rates, the dollar exchange rate will strengthen in the future. The decline in demand for crude oil may cause a further correction in oil prices, and if oil prices continue to pull back, it will be fantastic news for the U.S. economy. However, it is necessary to pay close attention to the sanctions imposed by European countries on Russian crude oil. There is a real possibility that excluding Russian crude oil from international markets will lead to oil prices rising again.

oil price chart

What is the outlook for the U.S. economy? 

Goldman Sachs has once again lowered its U.S. growth forecasts for 2022; hence, the market expects a sharp decline in the U.S. economy in the first quarter. In addition, economists led by Goldman Sachs chief economist Jan Hatzius lowered the U.S. real GDP growth forecast for 2022 from 2.0% to 1.75% while rating the chances of the U.S. economy falling into recession in the next two years at 35%. The bearish views are not only shared by Goldman Sachs, but many other banks and investors have warned that a sharp interest rate hike could trigger a recession. For example, U.S. home mortgage lender Fannie Mae expects a "mild recession" in the U.S. economy in the second half of 2023. In contrast, some opposing voices believe a recession will not occur, saying that U.S. economic demand remains strong and can adapt to tighter monetary policy. 

However, the U.S. economy will inevitably encounter many difficulties in achieving a "soft landing" of the economy in the second half of 2022. The economy will face several tests, including interest rate hikes that increase pressure on various debt costs, inflation gradually eroding consumers’ disposable income, low consumer confidence, geopolitical tensions continuing to push up prices, etc. As a result, the Federal Reserve will have to resolve the above series of existing problems while reducing inflation, maintaining a stable employment rate, and keeping the economy away from the risk of recession.

Last Updated: 28/04/2022

This market commentary and analysis has been prepared for ATFX by a third party for general information purposes only. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell as it does not take into account your personal circumstances or objectives, and should therefore not be interpreted as financial, investment or other advice, or relied upon as such. You should therefore seek independent advice before making any investment decisions. This information has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. We aim to establish and maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of our clients. The market data is derived from independent sources believed to be reliable, however we make no representation or warranty of its accuracy or completeness, and accept no responsibility for any consequence of its use by recipients. Reproduction of this information, in whole or in part, is not permitted.


 

Recent news

Litecoin Reversed from Support Zone

Litecoin cryptocurrency recently reversed up strongly from the support zone lying between ...

Recent news
Crude oil prices break resistance & aims $116 in the oil market

Bullish momentum in the oil market has enabled WTI crude oil prices to break resistance at...

Recent news
Elon Musk advocates Dogecoin as potential currency

There has been an increase in the daily trading volume for the meme coin - Dogecoin, which...

Recent news
Gold rebounds above $1800 from a softer USD: Eyes on retail sales data

The precious metal gold reclaimed its bullish momentum after testing three months low at $...

Recent news
Investors Anticipate Aggressive Interest Rate Hikes Amidst High US Inflation

Last week, the US April CPI was reported at an annual rate of 8.3%, a slight slowdown from...