US economy shaken by Bank of America’s stunning GDP prediction

Zero.

That is the most recent estimate made by Bank of America for the expansion of the American economy in the second quarter.

Due to weaker than anticipated consumer spending published by the Department of Commerce on Thursday, the second-largest American bank by assets cut down its projection for GDP growth in April through June period from 1.5% to 0.0% on Friday.

In a note to clients, the bank’s economists noted that “this was the first fall in consumer spending this year amid high inflation and hawkish rises by the Fed, indicating a slightly weaker economy than previously assumed.”

The second-quarter reading for GDP NOW, the Atlanta Fed’s GDP tracker, fell from one% on Thursday to a negative 2.1% growth rate on Friday.

Consumer spending has been roughly flat since January, according to the Personal Consumption Expenditure data for the first quarter and the month of May issued by the Commerce Department.

Household earnings after accounting for inflation have decreased as price increases have surpassed wage increases.

Despite expectations that PCE inflation, the Fed’s preferred gauge of price fluctuations, would decline as a result of the biggest rate hike this century, PCE inflation stayed at 6.3% in May.

According to the Institute of Supply Management statement on Friday, its measure of manufacturing activity hasn’t been this low since May 2020, when the economy was still reeling from the pandemic’s start and lockdowns.

The economy will increase by 2.3% this year, according to Bank of America. As the “lagged impact of tighter financial conditions cools the economy,” it projects only 1.4% growth for 2019 and 0.8% percent growth for 2020. A recession is predicted to be 40% likely for the following year by the bank.

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