Code Red: Atlanta Fed’s GDP Tracker Turns Negative

Economic data released over the past three months points to another economic contraction, which would mean the U.S. economy has been shrinking for the entire first half of the year.

The Federal Reserve Bank of Atlanta’s GDPNOW economy tracker turned negative on Thursday following the release of economic data on Thursday morning. The tracker now shows the economy shrinking one percent in the April through June period, down from an estimate of 0.3 percent growth earlier this week. For the two weeks prior to this week, the tracker had showed zero growth.

The GDPNOW tracker is intended to show what recent data imply for current economic growth. It does not attempt to forecast growth based on unreleased data. So today’s negative reading could be supplanted by a positive reading in the future if incoming data is consistent with economic growth.

The economy shrank 1.6 percent in the first quarter. As a rule of thumb, two consecutive quarters of economic contraction are considered a recession, although the official declaration of when recessions begin and end comes from an obscure committee of economists affiliated with a private organization called the National Bureau of Economic Research and is based on more complex, subjective, and less transparent analysis.

Most economists think economic growth will return in the second quarter, although estimate range from an annualized growth rate of three percent to just 0.1 percent. That wide breadth of predictions illustrates just how much uncertainty there is about the economy right now. In particular, inflation and its impact on the consumer continue to surprise economists.

Real consumer spending, for example, grew at just a 1.8 percent rate in the first quarter, according to the revised data released by the Commerce Department on Wednesday. That was down from the initial estimate of 3.1 percent growth. Economists polled by Econoday had estimates that ranged from 2.9 percent to 3.1 percent, with a median prediction of 3.1 percent. So the estimates were not even in the ballpark of reality.

Data from the Commerce Department released Thursday showed that inflation-adjusted consumer spending and household income fell in May.