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Evaluating the Headlines

May 9, 2022

There have been multiple news headlines centered around the US economy and concerns of a recession. What is fueling those headlines, and are the concerns valid? Catch our newest TrendsTalk episode with ITR Economist Patrick Luce to see what we found by taking a closer look at the data and leading indicators.



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The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Hi everyone, this is Patrick Luce, economist with ITR Economics. Thank you so much for joining us for another TrendsTalk. I'd love to dive right in and just say, one of the things we love to do here, at ITR is evaluate headlines, understand what's causing them and try and distill the data that either validates or refute them. And with all of the chaos, the economy has endured recently. The R word, recession continues to make its way into the headlines more and more. And I know we've talked about this quite a bit in past TrendsTalk, but recently, the bureau of economic analysis has released its advanced estimates of real gross domestic product in the 1st quarter of 2022. And if you've been following the headlines, you may know that the US GDP showed a decline from the 4th quarter of 2021. And so it's important for us to ask, "What caused this reduction and does the data say this is the start of a downward trend or is it just a temporary speed bump?"

So, let's dig into some of those drivers and evaluate the nuance. First and foremost, the 4th quarter of 2021 was very high. And so while the 1st quarter of 2022 was down 0.4% from the 4th quarter '21, the 4th quarter of 2021 was actually up 1.7% from the 3rd quarter of 2021. So if we were to try and evaluate our trends and quarterly data, without that rather high increase that we saw in the 4th quarter of last year, let's just look at the 3rd quarter of '21 to the 1st quarter of 2022 and realize that we posted a 1.3% growth rate over that time. And here at ITR, we develop our analysis beyond those quarter to quarter rates of change. We're going to look at data trends from a given period compared to that same period data from a year ago and develop these annual rates of trend.

And when we do that, we're going to compare the 1st quarter of 2022 to the 1st quarter of 2021. And when we do that, we're showing the 3.6% growth rate. So still growth over the past year, we have shown growth in gross domestic product. And if we were to dig further into what might have drew out some of those decreases that we saw in our GDP this past quarter, we can point to inventories being down. We include inventories as part of our overall gross domestic product. And one of the primary components of this was the automotive sector. If anyone's been trying to buy a car and gone onto car lots, you likely are feeling this and just seeing this with your eyes. Semiconductors are still a challenge. They're primary culprit to these low inventories and what we try to understand in the economy is, what, can we peek out into the future and say is going on?

And so if we look at the two key surges of these global supply chain pressure appointments, first was the shutdown on COVID, but then we had a demand surge in 2021. And when those two events occurred, we compounded a situation of supply chain issues that was already starting to emerge. But what we expect here at ITR, when we look at indicators such as the global supply chain pressure index, is that these pressures will start to ease as the year progresses. And this will allow for rise in production, allow us to start rebuilding those inventories. And when we look even more acutely at North America light vehicle production, our expectations research enter phase B and we see that accelerating growth in the latter half of this year. But I do want to caveat that and with that said, there are some disruptions going on from the war in Ukraine to potential uptakes in COVID risk.

And so we want to keep an eye on this auto sector, but if we focus on the macro fundamentals, things are looking positive in the back half of this year and then into 2023. And then the 3rd trend that I really want to focus on that again, contribute to this down trend in our overall gross domestic product from one quarter to the current, is government spending. In the first quarter of 2022, the federal government spent less money. Again, talking about government spending on goods and services, not necessarily stimulus payments, but just truly spending on goods and services, we at ITR are not expecting declines in government spending. In fact, with infrastructure spending bill underway and all the planning that's going on to really support almost 600 billion dollars of new spending over the next few years, it's likely that government spending should start seeing increases and uptake.

And so when we factor these three components as to what cause some of the negative trends and negative pressured on GDP, we can also consider what positives happened. And when we look at the positives from the GDP results, we see that consumer spending remains strong and has grown from the end of 2021 through the 1st quarter of 2022, being driven by disposable income, increases in wages. And so when we factor in the positives of consumer spending that, we will continue saying we'll support growth in our economy. And we look at some of the additional trends and overall negatives that we've seen in the most recent quarter, we'll say that challenges are still going to persist. There's labor constraints, there's the war in Ukraine, COVID and supply chain implications. And while our forecast do call for individual markets to enter a near term recession during the cycle, the overall aggregate economy will not. There's too much strength in the consumer and there's too much upside to the core fundamentals of the economy.

And so what we want drive home and what we hope to continue drive home in all of our conversations, is that there's nothing we can do about headlines. They will forever be a part of the economy. Just remember to think about what's causing them. It could be some key trend drivers, or it could just be the new cycle. And we'll always try to think through what the data is telling us, but I want to thank you all so much for tuning in today, and I hope you all have a fantastic week.


Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.