If you are betting on a recession, GPD (Gross Domestic Product) is what you are tracking.
And the latest reading signaled anything but an imminent recession.
That doesn’t stop me from being bearish.
I’ll explain why today.
Because GDP clocking in at 4.9% in the third quarter was a very strong data point. The sharp increase came due to contributions from consumer spending, increased inventories, exports, residential investment and government spending.
All good stuff and it feels like we are a long way away from the definition of a recession – two consecutive quarters of negative GDP growth.
But we may be closer than you think.
Let’s dive in…
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Strong growth in Q3 can give us an optimistic feeling. At 4.9%, it’s the strongest YoY growth since the fourth quarter of 2021 at 7% which was rebounding from the pandemic weakness.
Guess what happened the next two quarters?
We entered into a not-so-official recession, as Q1 2022 and Q2 2022 experienced negative growth.
While they didn’t classify it as a recession, that was the official definition of a recession.
GDP isn’t expected to drop off a cliff, at least not yet.
According to Atlanta Fed GDPNow Forecast, which is one of the best ones to track as it gets updated in real time going forward, growth for Q4 is just over 2%.
Once again, if you look closer, you will notice that the estimates for the final forecasts, which are on the left, go from about 1.75% growth to negative 0.75% growth.
So keep in mind, while the GDPNow forecast is high, it almost always declines from here as it incorporates new data as it is released.
The Blue Chip consensus is a better feel, just because they are trying to account for upcoming weakness in data to be closer to the final reading.
So the key take away today, and from the strong GDP growth, is don’t be fooled.
This is not a long-lasting growth spurt the economy is hiting.
I anticipate a recession, with high certainty, to occur in 2024.
Q4 2023 just might be the start of it.
I’m still bearish, as I watch all the data coming in.
And I’ve positioned my portfolios to take advantage of it heading into the end of the year.
That’s all for today. Have a great rest of your weekend and Happy Halloween!
Let’s get it!
Regards,
Chad Shoop, CMT
Editor, Bank It or Tank It ELITE