Atlanta Fed Data Suggests US Could Be Sliding Into a Recession

The R-word, recession, is floating about and you can thank at least in part data from the Federal Reserve Bank of Atlanta. That branch of the Fed has a gross domestic product (GDP) tracker on its website that “provides a ‘nowcast’ of the official estimate prior to its release by estimating GDP growth using a methodology similar to the one used by the US Bureau of Economic Analysis.” 

No official body is saying there’s a recession. That’s the job of the nonprofit National Bureau of Economic Research, which doesn’t directly work for the government and so is potentially less likely to let political advantage persuade it to say there is or is not a recession.

But the BEA does estimate GDP and since the 1970s, a rough estimate for a recession is a period of economic decline that starts with two consecutive quarters of falling GDP. The first quarter had negative GDP growth and that’s where the Atlanta Fed’s GDP tracker steps onto center stage.

According to the bank, the current estimate for GDP growth in 2022’s second quarter is low. “The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is 0.9 percent on June 8, unchanged from June 7 after rounding,” the Atlanta Fed wrote. “After this morning’s wholesale trade release from the US Census Bureau, the nowcast of the contribution of inventory investment to second-quarter real GDP growth decreased from -1.61 percentage points to -1.62 percentage points.”

That 0.9% is down from the estimate at June’s opening of 1.3%. The concern is that if this quarter slips into the negative in the next few weeks, there will be a recession, which would clearly affect many things, such as commercial real estate.

That said, the two-quarter standard is only a rule of thumb. A recession, according to the NBER, is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” There doesn’t even have to be two quarters of negative GDP growth. 

The theory behind recessions is that economic activity goes beyond a peak sustainable level. The result is like marathon runners who go through the physical resources stored in their bodies and suddenly can no longer maintain their racing pace. The well has run dry.

The call on a recession happens many months after it has started, and sometimes after it ends as well. But just because it’s not official doesn’t mean economic conditions are rosy. The prudent action might be to presume difficult times ahead and plan accordingly—just in case you do eventually hear that there has been a recession.