Contraction
This week has been dubbed “the biggest week of the year for the economy and stock market,” and it makes sense. We’ve been provided with earnings from some of the biggest companies, the Federal Reserve made an interest rate announcement, and to put the cherry on top the US GDP numbers finally arrived after heavy anticipation from investors, economists, and essentially every citizen.
US GDP contracted by 0.9% annually, an improvement from the 1.6% decrease last quarter. This marks the second straight quarter of a declining economy, meeting the common definition of a recession. However, economists made it clear that the US isn’t in a recession, affirming Fed Chair Powell’s comments from yesterday. Some are calling it a sentiment recession as numbers aren’t clear enough to declare, with analysts from JPMorgan saying that the strong labor market paired with solid consumer spending means that we aren’t there yet. Americans still spent less due to inflation and other worries, while businesses didn’t have much luck either.
The main talk of the day was business inventories due to the major impact they had on the GDP numbers. Companies worked to increase their inventories in 2021 because supply-chain issues were killing them, but now it’s completely bloated. Businesses are overstocked, and retail has provided us with evidence pertaining to this issue. Companies are starting to cut their inventory by decreasing prices, and this has caused dangerous swings for the economy. These inventory problems contributed to a 2.01% reduction in the GDP, meaning that if you exclude this the US economy grew by a solid amount. Unfortunately, you can’t exclude the problems of an economy, and this one has a big issue that needs to be solved in the coming quarters. Economists expect the economy to grow from here on out for the next year, which should calm fears of a future recession, but things can change if problems persist.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
