2% GDP Growth is Not a Recession  

• Q1 real GDP growth was revised up from 1.4% to 2.0% on stronger consumer spending and net exports. Q2 growth is also tracking close to 2%. The Fed is attempting to slow an economy with considerable momentum and recent data (including lower jobless claims released simultaneously with GDP revisions) suggest policy may not yet be sufficiently restrictive to do so.
• The revision was largely due to stronger services spending which was revised up from 2.5% to 3.2%. Also contributing to the upward revisions were stronger exports and weaker imports. Real final private domestic demand is now up a remarkable 3.2% QoQ annualized in Q1, the strongest reading since the immediate reopening period in early 2022.
• Consistent at around 2%, real GDP growth together with a pace of job gains around 300k/mth and a resurgent housing sector does not point toward a near-term recession. Consumer spending is proving to be much more consistently robust than contemplated in most forecasts, including Citi’s. Services spending in particular continues to run at a very strong rate and that does not seem to be slowing over the summer.
• The strength in consumer spending is particularly notable, given that consumers have run through roughly half of the estimated ~10% of nominal GDP in “excess savings.” Higher interest rates seem to be having little moderating effect on consumer spending. Even housing activity has picked back up despite mortgage rates that moved up from 3% to between 6% and 7%.

(Source: Citi Research)