Gross Domestic Product (GDP)

As I write this, The government just released their “estimate” of Gross Domestic Product (GDP) growth for the first quarter of 2022. It was down 1.4%. This was a surprise to many, including to me. After all, the GDP growth in the previous quarter was up 6.9%. That’s a big swing in 3 months. What happened? According to reports, GDP was down because of increasing trade deficits as well as supply chain problems.

If GDP were to be down again in the 2nd quarter, that will meet the economic definition of a recession. (2 consecutive quarters of falling GDP) We will know that in late July. That would be a very bad headline for a troubled White House heading into a mid-term election.

So, what could change that? Well, this is a preliminary “estimate” of GDP growth. It is possible that major revisions could change the final number when it is released. But if the bad quarter sticks and it is partially because of trade deficits, with the dollar at all-time highs against other currencies, is that going to get better this quarter? Will the supply chain issues be solved? With interest rates and inflation still rising, will housing and other consumer markets get better? 

Ronald Reagan swept into office in 1980 in part on the back of an emphasis on the “misery index” under the Carter administration. That index was inflation plus unemployment. Unemployment is low and will likely stay low for some time. But, inflation plus recession? That’s also a problem.