Dismal U.S. GDP report raises the odds of recession this year: Gary Shilling

The weakness in the economy spawned in part by the liquidation of bloated product inventories has only just begun, Gary Shilling writes

None of this should be a surprise. As far back as December, there were signs that a build-up of excess inventories in the last half of 2021 would lead to a cut in production and orders after American businesses stockpiled goods in anticipation of robust holiday sales that ended up being rather tepid. Of the 2.3 per cent growth in the third quarter of 2021, 2.2 percentage points was due to inventory-building and 5.3 percentage points of the fourth quarter’s 6.9 per cent gain.

But consumers held back. Real personal consumption expenditures, which accounts for 71 per cent of total GDP, rose just 1.3 per cent in the third quarter and 1.8 per cent in the fourth. And followed by only a 1.8 per cent rise in the first quarter, there’s still lots of inventory yet to be unloaded. Real retail sales fell 0.7 per cent in March from February and consumer confidence in the future plunged 28 per cent in April from a year earlier, according to the University of Michigan’s sentiment survey.