Lately, market analysts have been predicting a recession in our not too distant future. And right on cue, the first reading of economic growth for the first quarter of the year comes in at a negative 1.4%. Since the general definition of a recession is two quarters of negative economic growth, we must ask the question—has the recession already started, as opposed to the forecast of sometime next year? Generally, we think not.
For one, the job market is still very strong. In the first quarter of the year, the economy added almost two million jobs. And last month we started the second quarter by adding well over 400,000 jobs in April. While we are still recovering jobs lost during the last recession, we generally don’t add hundreds of thousands of jobs per month during a recession. Secondly, consumer spending continued to be strong during the first quarter of the year, including a 1.1% increase in March. Consumer spending accounts for two-thirds of our economic activity.
Thus, the final question is – if there are plenty of jobs being added and consumers are spending, how could the economy experience negative growth in the first quarter? Tim Quinlan, Senior Economist at Wells Fargo Economics said it best — “Net exports robbed the GDP bank in the first quarter, slicing 3.2 percentage points off of the headline growth rate. Inventories and government spending cuts took another 0.8 points and 0.5 points, respectively.” These items tend to fluctuate from quarter-to-quarter and if consumers continue to spend, we are not likely to see two negative quarters in a row. That does not mean that the economy won’t slow down as the Fed hikes rates. But for now, any slowdown is more likely to be felt later in the year.
Dave Hershman is the top author in the mortgage industry. Dave has published seven books, as well as hundreds of articles and is the founder of the OriginationPro Marketing System and Mortgage School. Want to send this commentary and other news in a personalized format to your sphere database or on social media? Sign up for a free trial at www.OriginationPro.com.