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Is the Recession Debate Becoming a Moot Point?

Wall Street’s analysts are slashing their Q2 GDP forecasts again this morning following the weaker than expected retail sales report.  I know we’re in a balance sheet recession, but with Q2 tracking near 1% growth the whole recession debate is practically becoming a moot point.  Goldman describes us at “stall speed” so who’s going to run around bragging about the difference between marginal growth and marginal contraction?  The bottom line is, this economy is incredibly weak and the risk, unfortunately is likely to the downside as the fiscal cliff nears.  I know I’ve been in the “no recession” camp for several years now (which has been correct), but I’m not exactly breaking out the pom-poms just because we’re growing 1%.  Technically, the recession callers are wrong, but we’re practically splitting hairs here saying that….

Here are some updates from around Wall Street:

Goldman Sachs (via Zero Hedge):

1. Retail sales declined by 0.5% (month-over-month) in June, while the consensus had looked for a 0.2% gain. Key details of the report were also weaker: non-auto retail sales declined by 0.4%, and growth in April was revised down. Similarly, “core”/control retail sales (ex-autos, gasoline and building materials) was weak, declining 0.1% in June. The weakness reflected lower sales across a variety of categories, including general merchandise stores, electronics, furniture, sporting goods stores, and health and personal care retailers. Merely food and beverages, clothing, and non-store retailers posted gains on the month. The report was a negative for our tracking estimate of Q2 GDP growth, which we reduced by two tenths to 1.1%.

Deutsche Bank (via Business Insider):

The net effect of weaker than expected retail sales, inclusive of revisions, is less Q2 consumption which we are tracking at +1.3%. This is down from our previous estimate of +1.8% and causes us to lower our forecast of Q2 real GDP by another 0.4% to +1.0%.


According to the Census Bureau, retail sales declined for a third straight month in June, declining by 0.5% following an unrevised decline of 0.2% in May and a downwardly revised decline of 0.5% in April. The weaker-than-expected June data in addition to downward revisions have lowered our Q2 GDP tracking model to 1.2% from 1.3% previously.


Consumer spending slowed abruptly in Q2. Consensus estimates of GDP growth in Q2 are likely to be lowered to 1.5% or less, down from growth of +1.9% in Q1. Pressure on the Fed to provide additional monetary accommodation will increase.

Merrill Lynch (via Calculated Risk):

Today’s weak retail sales report leaves Q2 GDP tracking a meager 1.1%. We expect the economy to remain weak through the rest of the year with growth of only 1.3% in Q3 and 1.0% in Q4. This translates to GDP growth of only 1.3% Q4/Q4, significantly below the Fed’s forecast of 1.9-2.4%.

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