The Commerce Department report on Thursday showed U.S. consumer spending rose less than expected in May, and suggested inflation had probably peaked, while higher prices forced cutbacks on some purchases.
Rising interest rates and tight financial conditions have been fueling worries of a recession.
In fact, the Atlanta Fed's GDPNow tracking model, following the release of the Commerce Department's personal consumption expenditures (PCE) data Thursday, revised second quarter U.S. gross domestic product (GDP) from 0.3% to negative -1.0% (seasonally adjusted annual rate).
Following the 1.6% decline in GDP in the first quarter, this new data point would suggest that with two consecutive quarters of negative GDP, the U.S. is officially in a recession, Yardini Research reports.
"Q2's estimate is a work in progress — though it is more likely to be even weaker once all of June's data are released," Yardini cautions.
"Inflation is not something that we don't have to worry about anymore. It is expected to be with us for quite some time," says Sam Stovall, chief investment strategist at CFRA in New York.
Central bank chiefs from the U.S. Federal Reserve, the European Central Bank and the Bank of England met in Portugal this week and voiced their renewed commitment to control inflation — no matter what pain it caused.
While stock investors are currently discounting a soft landing, or a "growth recession," as Yardini puts it, "stock investors are torn between the deteriorating outlook for corporate earnings and a less hawkish outlook for Fed policy."
This is likely to fuel continued extreme stock market volatility, even ahead of an official call for a recession in the U.S.
(Thomson Reuters contributed to this article.)
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