Profit Confidential Reacts to First-Quarter GDP Contraction, Says U.S. Halfway to Recession

Profit Confidential is weighing in on the contraction in recently announced first-quarter GDP data and suggests a recession is possible in 2015.

Profit Confidential (www.ProfitConfidential.com), an e-letter of Lombardi Publishing Corporation, a 29-year-old consumer publisher that has served over one million customers in 141 countries, is weighing in on recently announced first-quarter U.S. gross domestic product (GDP) data and why major economic indicators suggest the country is headed toward a recession.

The U.S. Department of Commerce announced recently that U.S. GDP contracted at an annual rate of 0.7% in the first quarter of 2015. In the fourth quarter, real GDP increased 2.2%. The technical definition of a recession is two back-to-back quarters of negative GDP. (Source: “Gross Domestic Product: First Quarter 2015,” Bureau of Economic Analysis web site, May 29, 2015; http://www.bea.gov/newsreleases/national/gdp/2015/gdp1q15_2nd.htm.)

“At the very core, the GDP report by the Bureau of Economic Analysis confirmed what I have been saying all along—there’s no economic growth in the U.S.,” says economist and lead contributor Michael Lombardi. “Consumption, hands down the biggest part of the GDP calculation, is suffering. In the first quarter, it increased by just 1.8%. In the fourth quarter, it increased by 4.4%.”

Because of the strong U.S. dollar, exports declined 7.6% in the first quarter. In the previous quarter, exports from the U.S. were up 4.5%. Inventories in the U.S. continue to increase, too. In the third quarter of 2014, business inventories were up $82.2 billion; in the fourth quarter, they were still up by $80.0 billion; and in the first quarter of 2015, business inventories increased by $95.0 billion. If the build-up in inventories is removed, U.S. GDP numbers look a lot worse.

Lombardi explains that economists and analysts are starting to aggressively lower their expectations for U.S. growth this year. In March of 2014, the Federal Reserve said that it expected the U.S. economy to grow in the range of 3.0% and 3.2% in 2015. By December of 2014, it expected the U.S. economy to grow between 2.6% and 3.0% in 2015. In its most recent projections (March 18), the Federal Reserve said that for 2015, the U.S. economy will grow at a rate between 2.3% and 2.7%. (Source: “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, March 2015,” Board of Governors of the Federal Reserve System web site, March 18, 2015; http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20150318.pdf.)

Over the past year, the Federal Reserve has revised its bottom GDP growth projections by 23% from 3.0%, to 2.3% now. But the Fed keeps telling us it will start to raise interest rates this year,” Lombardi concludes. “I see the anticipated growth rate of many economists, including the Fed’s projections, as far too optimistic. I will not be surprised to see the Fed’s projections revised lower again. With all this in mind, a recession this year is becoming a very likely scenario for the U.S. economy. In fact, we are already halfway there.”

Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit www.lombardipublishing.com.

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Release ID: 84142