Standard and Poor’s published its Purchasing Managers’ Index report this morning. This is a “flash report” projecting the way July private sector output is tracking.
It wasn’t good. The index fell from 52 to 47 (weighed down by services, not manufacturing).
Below 50 is considered to be contraction in activity, which tends to be consistent with a contraction in the economy.
This has people taking about “possible” recession.
But as we’ve discussed here in my daily notes, the economy has very likely already been in recession — for the first half of the year. It’s old news.
Remember, the official GDP contracted in Q1 by 1.6%. And a model the Atlanta Fed uses, to track all of the inputs used by the BEA to calculate the official GDP number, has been projecting a negative number for Q2 since late June.
That projection now stands at -1.6%, and we only have a few data points for the month of June yet to be incorporated. That data will come next week.
With that, by Thursday of next week, we will get the first look at Q2 GDP. It will very likely be negative. Two consecutive quarters of negative GDP is by definition, a recession.
This is technical recession, driven by high inflation (which is driven by both policy and pandemic driven supply deficits).
But what does this technical recession really say about the health of demand?
If we look at the nominal rate of economic growth it’s running hot — better than seven percent annualized based on the Atlanta Fed model.
For perspective, take a look at the past seventy years of nominal GDP growth. This nominal growth rate is “rare air” for the U.S. economy, only seen in times of high inflation (which we are experiencing).
