The US economy shrank 1.6% in the first quarter

First quarter of 2022 marked the start of Russia’s invasion of Ukraine

The US economy shrank at a slightly faster rate than previously estimated during the first quarter, the Bureau of Economic Analysis said Wednesday.With one quarter of negative economic growth in the books, the data adds to fears that a recession may be looming. Real gross domestic product declined at an annualized rate of 1.6% from January to March, according to the BEA’s third and final revisions for the quarter.

Previously, the advance estimate released in April showed a contraction of 1.4%. Last month, that was revised to a decrease of 1.5%.

The first quarter GDP performance, which the BEA noted includes some unquantified effects from the pandemic and the Omicron variant surge, stood in contrast to the fourth quarter of 2021, when the economy grew at a rate of 6.9% from the prior quarter.

The first quarter of 2022, however, marked the start of Russia’s invasion of Ukraine, which sent economic shockwaves throughout the global supply chain, as well as the food, finance and energy markets.Domestically, US inflation has soared to levels not seen in decades amid ongoing supply chain challenges, rising costs for commodities and labor and spiking oil prices.

Oil prices could slump to $75 a barrel in a recession

For now analysts don’t see a recession and still expect Brent crude to average $102 per barrel in 2022

Oil prices could surge higher or plunge lower depending on what happens next in global markets, according to Bank of America. Mounting fears of a recession have sent crude prices to their second consecutive weekly decline, but they remain above $100 per barrel amid still-high demand and constrained supply, while inflation, hawkish central banks and war still loom.

“Surging inflationary pressures from food to energy to services, coupled with fast paced interest rate hikes, suggest oil demand will struggle to fully recover to pre-pandemic levels until next year,” analysts wrote in a recent note. The various crosscurrents and risks left BofA with a wide range of possibilities. For now, analysts don’t see a recession and still expect Brent crude to average $102 per barrel in 2022 and 2023, after averaging about $104 for the year to date.

On Friday, Brent oil rose 2.6% to nearly $113 per barrel, but is down from a high of $133 reached in March. A recession, however, would trigger a pullback in fuel consumption, and oil prices could crash more than 30% from current levels, according to BofA’s estimates. If growth does go south, any easing in monetary policy from central banks would support oil prices somewhat. So even in the event of a recession in 2023, BofA sees crude averaging more than $75 a barrel.

Elon Musk says ‘inevitable’ US recession will probably come soon

Musk’s comments, echoing other CEOs, are accompanied by plan to lay off 10% of Tesla’s salaried staff

Elon Musk has warned that a US recession is “more likely than not” to come soon as the Tesla chief executive confirmed plans to cut 10% of salaried staff at the electric carmaker over the next three months.

The world’s richest man said a recession in the US was inevitable but would most probably come in the short term. “A recession is inevitable at some point. As to whether there is a recession in the near term, that is more likely than not,” Musk said in an interview via videolink at the Qatar Economic Forum in Doha on Tuesday.

Musk said Tesla was planning to reduce salaried staff numbers by 10%, confirming plans revealed in an internal email this month by Reuters.

Recession fears mount

Stock market plunges to new lows

Federal Reserve Chair Jerome Powell has pledged to do whatever it takes to curb inflation, now raging at a four-decade high and defying the Fed’s efforts so far to tame it. Increasingly, it seems, doing so might require the one painful thing the Fed has sought to avoid: A recession.

A worse-than-expected inflation report for May — consumer prices rocketed up 8.6% from a year earlier, the biggest jump since 1981 — helped spur the Fed to raise its benchmark interest rate by three-quarters of point Wednesday. Not since 1994 has the central bank raised its key rate by that much all at once. And until Friday’s nasty inflation report, traders and economists had expected a rate hike of just half a percentage point Wednesday. What’s more, several more hikes are coming.

The “soft landing” the Fed has hoped to achieve — slowing inflation to its 2% goal without derailing the economy — is becoming both trickier and riskier than Powell had bargained for. Each rate hike means higher borrowing costs for consumers and businesses. And each time would-be borrowers find loan rates prohibitively expensive, the resulting drop in spending weakens confidence, job growth and overall economic vigor.

Oil Market Fears Recession

Bullish and bearish catalysts collided

The oil market wrapped up another volatile week of hectic trading, swinging up and down in a $5 a barrel range as it was pulled between bullish and bearish catalysts in both directions every day.   Both benchmarks hit an eight-week high early on Tuesday, only to pull back later in the day and join on Wednesday the sell-off on Wall Street triggered by renewed investor concerns about a possible recession as top retailers flagged soaring costs and supply chain bottlenecks in their quarterly earnings reports.

In the week to May 20, oil market participants paid more attention to “recession fear” headlines than to the weekly U.S. petroleum status report, which showed another draw in gasoline inventories and higher implied domestic demand, which—despite record-high gasoline prices in America—is only set to rise further as we enter the summer driving season.

“The market is reacting to all sorts of different headlines hour to hour, and the movement in oil markets on a day-by-day basis getting even more exaggerated,” Andrew Lipow, president of Lipow Oil Associates in Houston, told Reuters on Thursday, when oil settled higher after the U.S. dollar weakened, following a plunge in crude prices in earlier trading on the same day.

The U.S. economy could be heading for a recession in the next year

A “very, very high risk” of recession warned former Goldman Sachs chief executive

The U.S. economy could be heading for a recession in the next year, according to growing warnings from banks and economists, as a sudden bout of pessimism hammers financial markets, which on Thursday spiraled further from recent highs.

Although major swaths of the economy — including the job market and consumer spending — remain robust, there are mounting worries that rising borrowing costs for consumers and businesses, after years of near-zero interest rates, could cause a sudden retrenchment. The Federal Reserve has raised interest rates by 0.75 percentage points so far this year, while officials are signaling more aggressive increases could be necessary to cool the economy. Continued uncertainty from the coronavirus pandemic and Russia’s invasion of Ukraine are adding to the uneasiness.

Financial markets fell again on Thursday, a day after the Dow Jones industrial average suffered its worst drop of the year. The S&P 500 inched further into bear market territory — defined as a 20 percent drop from the most recent peak — after Wednesday’s sell-off wiped out more than 4 percent of its value.

Aiming for a ‘soft landing’

How to to cool off inflation without sinking into recession

The Federal Reserve sees several avenues to solve the problem of inflation without a recession, but none of them will be easy, Chair Jerome Powell said Tuesday.

The central bank is focused solely on a single objective: a “soft landing” for the US economy. The phrase describes the ideal scenario in which inflation returns to the Fed’s 2% target while unemployment remains low.

Yet trying to accomplish such a landing would require some careful maneuvering. Economic growth has begun to slow with the Fed raising rates, but if spending cools too quickly, companies could halt their hiring plans or even lay off employees.

U.S. economy grew by 5.7 percent last year

The nation’s gross domestic product has bounced back from the 2020 coronavirus recession

The U.S. economy grew last year at its fastest pace since 1984, rebounding from a sharp but brief coronavirus-induced recession in March 2020.

The nation’s gross domestic product, a measure of all goods and services produced, expanded by 5.7 percent in 2021, the Commerce Department reported Thursday. Growth accelerated even faster during the period from October to December, rising to 6.9 percent on annualized basis.

With inflation running hot and Covid-19 cases from the highly contagious omicron variant filling overworked hospitals and keeping workers at home, the economy is expected to grow at a slower rate in 2022. Economists have already slashed their forecasts for the first quarter, due to the impact of omicron.