US: Economy may have slowed in Q2, but the wheels are not yet coming off the bus – Wells Fargo

The US economy contracted at a 0.9% annualized rate in the second quarter, according to official data released on Thursday. Analysts at Wells Fargo point out it is undeniable that the economy is cooling. They believe broad activity is not yet consistent with a contraction that is typically thought of as a recession.

Key Quotes: 

“We are forecasting recession, but we do not have it starting until early next year. The strength of the labor market today is the best argument against those saying we are already in recession.”

“Even if skeptics can be convinced that in this particular instance, back-to-back quarters of negative GDP growth does not constitute a recession, it is undeniable that the economy is cooling. Based on the available data, we believe broad activity is not yet consistent with a contraction that is typically thought of as recession.”

“We expect tight monetary policy alongside still-high inflation to tip the U.S. economy into a mild recession by Q1-2023. Our latest July forecast pulled forward the timing of that downturn, and if conditions continue to deteriorate, it may warrant further reconsideration. Another potential consideration in the context of today's report is that an argument could be made that tighter monetary policy is already having a demonstrable slowing effect on growth; if that succeeds in cooling inflation, it might make the Federal Reserve's job a little easier.”