US Q2 GDP Expected to Grow... "Recession Concerns Remain"

Escaping Two Consecutive Quarters of Contraction
Fed's Tightening Policy Likely to Continue
Consumption Indicators Slow Down... High Levels Maintained
If Job Market Weakens, Rate Hike Pace Will Be Considered

[Asia Economy Reporter Yoonju Hwang] The U.S. economic growth rate for the second quarter, to be announced next week, is expected to record a positive (+) figure. It is anticipated to escape from two consecutive quarters of negative growth, easing concerns about a technical recession. This development allows the Federal Reserve (Fed) to continue its tightening stance, although the pace of interest rate hikes may change depending on the labor market.

Yumi Kim, a researcher at Kiwoom Securities, stated on the 23rd, "A slight positive growth in the U.S. economic growth rate for the second quarter seems possible."

Researcher Kim explained, "Although recent consumption indicators have slowed, both retail sales and personal consumption expenditures have maintained an increase of around 8% compared to the same month last year, keeping the overall level high."

She added, "The inventory reduction that negatively affected the first quarter's economic growth rate could act as a positive factor in the second quarter. If the second quarter economic growth rate records a positive figure as per market consensus, concerns about a heightened U.S. economic recession will somewhat ease."

[Image source=Yonhap News]

However, Researcher Kim pointed out that the probability of a U.S. economic recession may increase toward the latter half of the year. She said, "We need to consider liquidity reduction due to the Fed's aggressive tightening and the weakening of households' real purchasing power. Since an increase in inventories suggests a demand slowdown, there could be concerns from a content perspective."

Researcher Kim emphasized, "Although the announcement of the second quarter economic growth rate showing positive growth may provide some relief regarding the U.S. economy, it is likely to be short-term rather than sustainable."

Hana Securities also forecast that the U.S. second-quarter GDP (Gross Domestic Product) will grow positively at an annualized rate of around 0.9% compared to the previous quarter. Kyuyun Jeon, a researcher at Hana Securities, analyzed, "U.S. consumption indicators are still favorable. If the U.S. economic growth rate does not show negative growth for two consecutive quarters, concerns about a technical recession will ease."

However, warnings about an economic recession continue to rise. Researcher Jeon pointed out, "According to the July U.S. Federal Reserve Beige Book, which assesses regional economic conditions, concerns are expressed that the risk of recession is increasing in five regions. Manufacturing orders and production are sluggish, and households' disposable income is decreasing, increasing downward pressure on the economy."

The labor market's tightness remains uncertain. Researcher Jeon evaluated, "Job openings at U.S. companies have been declining since peaking in March this year. Wage growth is expected to gradually slow down."

Researcher Jeon emphasized that if the labor market begins to weaken gradually, the Fed will consider the end point of the interest rate hike cycle.

He predicted, "After September, the Fed is likely to switch to baby steps (25bp) in raising interest rates, and the rate hike cycle is expected to conclude by the first half of next year."