Bank of America Slashes GDP Forecast to Zero

Zero.

That is Bank of America’s latest forecast for the growth of the U.S. economy in the second quarter.

The second largest American bank by assets on Friday revised down its estimate for GDP growth in the April through June period from 1.5 percent to 0.0 percent, citing weaker than expected consumer spending reported by the Department of Commerce on Thursday.

“This was the first fall in consumer spending this year amid high inflation and hawkish hikes by the Fed, indicating a slightly weaker economy than previously assumed,” the bank’s economists said in a note to clients.

The Atlanta Fed’s GDP tracker, GDP NOW on Friday plunged to minus 2.1 percent growth for the second quarter, down from the one percent reading on Thursday.

The Commerce Department’s Personal Consumption Expenditure data released for the first quarter and the month of May indicated that consumer spending has been more or less flat since January. Inflation-adjusted household earnings have fallen, with wage gains swamped by rising prices. PCE inflation, the Fed’s favored measure of price changes, remained at 6.3 percent in May, defying predictions that it would come down as the Fed imposed the biggest rate hike in this century.

The Institute of Supply Management said on Friday that its barometer of manufacturing activity fell to the lowest level since May 2020, when the economy was staggering from the onset of the pandemic and lockdowns.

Bank of America expects the economy to grow 2.3 for the full year this year. It expects just 1.4 percent next year and 0.8 percent in the year after that as the “lagged impact of tighter financial conditions cools the economy.” The bank estimates a 40 percent chance of a recession next year.