US GDP forecasts are cut due to sluggish consumer spending

• Some economists believe the world’s largest economy will contract for a second straight quarter.
•  Personal spending climbed by only 1.8% in the first three months of the year, down from previous estimate of 3.1%.
• Annualized GDP projections have been reduced to 1% from 2.7% previously.

Several economists slashed their second-quarter US GDP forecasts in the wake of poor consumer expenditure data, which has added to fears of an economic downturn in the United States.

Some economists believe the world’s largest economy will contract for a second straight quarter, surpassing the precise definition of a recession.

The Commerce Department announced Thursday that personal consumption climbed 0.2% in May, missing economists’ estimates of a 0.4% increase. This was a decline from the downwardly revised 0.6% gain for April, indicating that spending was less than previously estimated in May and June.

Read More: US Supreme Court limits EPA’s ability to control greenhouse gas emissions

Wednesday’s revision of the first-quarter GDP data revealed that personal spending climbed by only 1.8% in the first three months of the year, as opposed to the previously reported 3.1% increase.

The weaker real consumption statistics in the spring and the upward adjustments to the first quarter inventories in the GDP report prompted Goldman Sachs to reduce its second-quarter US GDP forecast by one percentage point to a mere 1.9% gain. In the second quarter, it is now anticipated that personal consumption will increase by only 1.6%, compared to previous predictions of 2.3% growth.

In the second quarter, Capital Economics now predicts that consumption will increase by only 0.8% on an annualized basis, as opposed to its previous projection of over 3%. Annualized GDP projections have been reduced to 1% from 2.7% previously.

Read More: US consumer expenditure cools in May due to inflation

Similarly, the GDPNow tracker of the Federal Reserve Bank of Atlanta indicated a 1% decline in GDP for the June quarter.

Pantheon Economics lowered its US GDP projection and now anticipates a 0.5% fall in the second quarter.

“All the decline will be in the inventory numbers,” chief economist Ian Shepherdson said. In comparison to the first three months of the year, he anticipates that domestic final demand will increase by only 1.5% during the second quarter.

“Markets and the media will call two-quarters of falling headline GDP a recession, but the [National Bureau of Economic Research] won’t because payrolls have continued to rise strongly,” Shepherdson said, referring to the research organisation that determines whether the economy has officially entered a recession.