| Hi Everyone,
A recession is defined as two consecutive quarters of negative GDP growth. According to Investopedia, GDP, which stands for gross domestic product, is "the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period."
GDP is often regarded as a leading indicator of a country's economic health. So what does a negative figure mean? The last recession occurred in 2020 following the pandemic, where GDP fell 5.0% in Q1 2020 and 31.4% in Q2 before quickly recovering.
For Q1 2022, U.S. GDP contracted. Analysts who took part in a Dow Jones poll were expecting a 1.0% increase, but the economy actually shrank during the period by 1.4%. This differs from Q1 2021, when GDP rose 6.3%. However, that data reflected the massive amount of government stimulus used to combat COVID-19.
What’s surprising is how markets are reacting. Despite the ominous print, traders seem to be shrugging off the news, as equities and bitcoin were trading up for the majority of the day.
This is likely because the drop in the headline GDP number was primarily due to reduced government spending, shrinking inventories and the rising U.S. trade deficit.
But other indicators—including nonresidential investment and consumer spending—continued to show healthy growth in Q1.
In fact, demand from both businesses and consumers continued to grow at a healthy clip—something that the Federal Reserve will continue to monitor as it tries to control inflation that sits at multidecade highs. | 