three out of five Americans believe that the US is already in recession, yet GDP just came out and it was wildly better than expected in the second quarter. So that must mean that most people are wrong. Nope, not at all. The GDP figures actually show both why people are so unhappy and why the economy is heading toward trouble. Underneath all the hype, the goods economy is already in recession. The second quarter numbers actually correlate with what I was just talking about yesterday, the continued alarms coming from the corporate world about their customers, about consumers. GDP overall may have accelerated from the first quarter, but consumers are indeed buying fewer goods, a perfect match for the weak retail sales reports that we keep highlighting. Most honest people understand the danger this represents, that it could easily get worse and then it won't be contained to the goods economy. This is one reason why there was no real reaction in the market, the real market, the bond market yields right now are lower today than they were yesterday, though not quite as low as they were before the release. The difference is

only a couple basis points though. And the reason consumers are buying fewer goods is the same one that leads the goods recession to spread everywhere else. Americans are already hugely worried about their own situation as this and many other studies and stories keep showing. And as the labor market sens unemployment rises even more, the chances of that bigger break keep going up with every tick in the unemployment rate. So, in the meantime, the rest of the economy is simply trying to ignore all of this in the goods economy, hoping the goods recession will be contained. That's why the headline rate came in the way it did. And of course, one of the biggest contributors to the second quarter GDP was a buildup of unsold goods inventories. And as we see in a lot of recent data, manufacturing is already heading back into further contraction. Business cycles are back and forth processes, and GDP is another example of that. But underneath the headline and the hype, there is a goods recession going on, and it is bothering not just Americans, it's bothering Corporate America, it's bothering a lot.

of participants all over the world. So let's start out with that study, which suggested that Americans can feel that the economy is in deep trouble. This was released a couple days ago, and it was a random double-op study of 2,000 members of the general population in the United States. It was commissioned by a firm between June 20th and 24th. On average, it says respondents who feel the US is in recession believe it started over 15 months ago, roughly in March of 2023. These Americans don't expect it to go anywhere quickly; they believe this feeling will last until around July of 2025. As a result, some respondents are questioning their own financial futures, and those who believe that said was about three out of five Americans. So, the majority of the US population believe that they've been in recession since last year's banking crisis. Not only was that a traumatic event, it also represented the start of a credit crunch. That was a real phenomenon that happened, that came out of it as.

well, as most important of all, what we're really talking about is unemployment. The labor market softened, the unemployment rate hit its bottom in April of 2023. So, Americans have been feeling more and more recession as the unemployment rate rises, as the credit crunch continues to crunch even worse, as the economy continues to soften, however slowly that process is playing out. And during this time, consumer prices are disinf lating, not accelerating. So, it's not restarted inflation or restarted consumer price pressures that have most people worrying about their finances. That's part of it, the lost purchasing power behind us. But when you put these two things together, that's why most Americans feel like this is a recession, even if some of the headline statistics don't yet show it. And part of the reason why that is, is because in this initial stage, or at least in this transitionary period, most Americans are talking about being unhappy with the economy, not quite doing a lot about it. They're making small steps and small adjustments. That's why we have a goods recession, but that's

also why we only have a Goods recession. As one executive from the study was quoted as saying with confidence in the US economy at a low point. Consumers are urgently seeking ways to feel in control of their finances. To feel in control of their finances and the way you get control of your finances to start tightening your belt. But Americans aren't quite doing that in a big way just yet. So they feel the impact of rising unemployment. They feel the lost purchasing power. They feel the economy becoming recessionary but aren't yet themselves being fully recessionary either. But that's where we continue to go. And the real danger is and economists and policy makers know this as the unemployment rate rises as real unemployment in the economy goes up. The dangers that Americans will just talk about being unhappy. They start acting. They can't like getting control of their finances means actually doing something about it and doing something about it more than they already have and what they've already done. We do see in the GDP figures. We hear it from

corporations around the economy, and we also see it in second quarter GDP getting behind all of this stuff and into the details. That's why Euro dollar university has memberships and subscriptions so you can stay on top of what all of this means, not just what's happening, but understanding what's important about all of it. Because let's face it, while there's lots of useful information in the mainstream economics, leaves you with no way to make sense of it. Most of what you hear about in state of the economy, interest rates, all of it, what money even is, what you hear is mainly just nonsense. So we have memberships and subscriptions at EUR doll University, and our anniversary sale is in its final days where we're offering some of the best prices we've offered since we launched a couple years ago. So the anniversary sale winding down, check out all the information about memberships, subscriptions, pricing, and everything else at our website Euro dollar University. So the quarterly rate for the second quarter of GDP way better than

every expectation. It was 2.8% quarter-over-quarter, that's an annual rate double the reduced rate from the first quarter, which just 1.4%, far better than any expectation, far better than everything. However, that doesn't tell the entire story. In fact, it doesn't really tell much of the story to begin with. The focus on the quarterly rates is misplaced because even though the quarterly rate was better than expected, GDP is still lagging behind. In real terms, it's 2010's baseline. Ever since the technical recession in early 2022, which wasn't a recession, that was the change in trend, that was the transition from the supply shock upside to the supply shock downside. The US economy fell off trend for different reasons, first because of the nominal price changes, too much price pressures. GDP continues to lag behind the 2010s trend. So you already get a sense of why Americans are not happy with the state of the economy, because they feel that difference, and we're starting to see that difference build up in different

ways, including the rising unemployment rate itself. The economy is not living up to all the hype, and here's the proof, the evidence for it in GDP. You focus on the 2.8% or the quarterly variation, you miss the real story here. In real terms, we're behind where we should be, but the issue of recession, as it usually does, comes down first to the goods economy. Even though the headline GDP for the last three of the last four quarters has been really looks really good, the goods economy in 2024 is already contracting. It's contracting not just in real terms but also in nominal terms, and that matches what we've talked about in retail sales. Retail sales have been basically flat since last December, so all of 2024 retail sales are up just 0.15%, and GDP backs up what retail sales are showing us. But more importantly, you can see what's happening in the economy. You can see why Americans are reporting that they believe the recession started last year just from what we see in the personal consumption expenditures.

part of GDP. The goods part of GDP. There's been basically three stages to the downside of the supply shock, and each one of those tells us something very important about this transition, about this process of the economy weakening and rolling over, not strengthening or continuing to be resilient. We start out with the upside of the supply shock, that's the second quarter of 2020 into the second quarter of 2021 for a full year. You can see nominal and real spending on Goods absolutely surges because people are locked down. They can't go out and spend on Services. They got a transfer from Uncle Sam, so they started to spend on amazon.com, and a lot of that money went overseas because a lot of the goods that we bought were made outside the US. So much for the US economy. But then suddenly the first stage of the downside of the supply shock around the third quarter of 2021, about the time the yield curve started to really invert and swap spreads and everything else third.

late 2021 until the end of 2022, stage one of the downside of the supply shock in goods spending. Real spending suddenly begins to stagnate, but at the same time nominal spending continues to skyrocket. In fact, skyrockets even more so. We were paying a whole hell of a lot more to get a little bit less. And the reason that was that didn't turn into a full-blown recession right there is because there was so much nominal activity and artificial support for that nominal activity in that early stage of the downside. So even though we were paying more to get less, there was so much artificiality behind it, it continued on. But that transition, the technical recession early 2022, that was a warning sign that it would not going to be, that was not going to be sustained, and that the downside of the cycle had begun to emerge. The second stage in the goods economy showed up in the first quarter of 2023, right from the beginning of 2023, for a couple of reasons to start.

with there was disinflation in terms of consumer prices. We got a little bit of relief, in fact substantial relief, from Consumer Price pressures, which helped consumers be able to spend. There was still some savings built up, on top of savings. We got a sudden increase in wages and incomes. Part of it was Private wage increases for all the cons to make up for some of the Consumer Price price increases of the last couple years. Some of it was minimum wage increases mandated by various state governments. There was a huge contribution, an enormous contribution, from the federal government in terms of Social Security cost of living adjustments, so a huge increase in incomes at the start of 2023. At the same time, disinflation, the goods econom gets a new Breath of Life here, and so for the remainder of 2023 real spending and nominal nominal spending continues to slow down, but real spending starts to starts to increase all over again. So PCE in Goods in 20123 looked like it was holding up relatively.

well, but during the second stage, that's when the banking crisis showed up, that's when the credit crunch showed up, and most important of all, that's when unemployment began to show up, and that's what Americans started to feel in the middle of last year, and that led us to the third stage of this transitionary period, the goods recession, the goods recession that shows up in the GDP report in real terms and nominal terms. PCE for goods is down throughout the first half of this year, again matching retail sales. We already knew this was the case, but here's GDP backing up all everything that we've been hearing about in the corporate reports, retail sales, labor market corroboration, all of the correlations that we've seen and gone over. Here's GDP in the goods economy showing that it is picking up. The same thing you can see it even clearer when you put it in monthly terms. So this isn't the GDP numbers, this is the monthly report from the same people who put together GDP. It's a bureau of

economic analysis. But when you put it in monthly terms, you can really see the transition. You can see these different stages even more clearly. So what you see is nominal terms, good spending is declining this year. In real terms, good spending is declining a little bit this year. And the whole matter comes down to how we interpret these declines. This recession in the goods economy. In nominal terms, spending continues to be way up there, but in real terms, it's not, meaning that this is the pressure that Americans are talking about. They're paying a lot more and not getting less for it. And now they're starting to pay a little bit less because they don't have the budget space and discretionary spending space to be able to maintain nominal spending. Some people have argued that this is a good thing, this is nothing more than the economy starting to normalize after the splurge and surge in good spending during the supply shock period itself. However, the unemployment rate, the fact that people don't believe this economy's doing well, argues that this is more than

just some kind of benign normalization process. That there really is substantial weakness and part of that comes down to the fact that so many businesses in the economy in 2021 and into 2022 bought into that hype. And so, they acted accordingly. They were prepared for 2021 to continue forward far into the future, a permanent plateau of prosperity. So, they are not prepared for this transition process, and they have been resisting it this entire way. But they're not going to be able to resist it forever because of that weak spending in the goods economy. Because of the recession of the goods economy, inventories built up pretty sharply in the second quarter. According to GDP nominal terms, inventories rose by 93 billion, which is a substantial figure. That's much bigger than the 36 billion in the first quarter. In real terms, it was 71 billion, almost tripled the 28 billion from the first quarter. That added 8.82 points to the GDP growth rate. Without inventories, GDP would be under

2% um, so manufacturing the goods economy. It continues to look like recession, and as that continues to look like recession, as policymakers know, the danger is that it spreads everywhere else. As unemployment rises, it triggers that point which Americans say, I've had enough, I have to make bigger changes. And that's why the markets, the treasury market in particular, didn't really respond all that much to GDP. The 10-year treasuries is at 4.23 just before I started recording again. That was down lower earlier in the day, but it's at 4.23. It's lower today than it was yesterday despite GDP. The 2-year got all the way down to 4.38, 4.37 overnight. As of last check, it was 4.41, and that's less than the 4.44% from yesterday. So not a whole lot of reaction in the marketplace. The spreads are still bull steepening. The 5-year treasury at 4.11, which means we're still getting the signal, the bull steepening signal from that one as well. So same bull spread.

same lower rate. No Monsters sell off in the treasury market like we would have gotten a couple a couple months ago whenever we saw, you know, the CPI report come in hot and sticky or the, the monster payroll reports that regularly show up. This monster GDP didn't produce much or any reaction in treasuries because it actually confirms all of the weakness that we're seeing. That's it, just confirms that right now it's contained in a smaller section of the economy, but that's the thing, it doesn't stay contained in a smaller section of the economy, it doesn't stay contained to just the goods part because as the goods economy continues to weaken as we could go through this real normalization process from the supply shock that leads more weakness, more unemployment cut, more cutbacks in spending to the point that it becomes nonlinear. That's what policymakers are really afraid of, that's what Bill Dudley was talking about yesterday when he urged the FED to cut next weak because as unemployment Rises, Americans know the economy sucks.

but so far they're only making moderate adjustments to that because they would rather spend if they can. So they're spending as much as they can but complaining about the pressure they're feeling to be able to spend as much as they can. And as unemployment Rises, as the unemployment rate goes up, as the labor market continues to weaken, as businesses start to feel the pressure and start making more and more adjustments of Their Own, we get to the point where Americans say, Okay, I might want to spend this much but I really can't now. I really need to tighten my belt. And when that happens, it's not just a small Goods recession. It becomes a bigger Goods recession that becomes a full-blown economy recession that leads to even more layoffs, even more weakness in spending. The Vicious Cycle of recession. So while GDP in the second quarter looked really good from a headline perspective, what it actually confirmed was everything else that we've been talking about all year. It's there in the numbers and as it's there in the

numbers. And as long as unemployment rises, the dangers of completing the cycle have gone continue to go up and have already gone up. As unemployment goes up, also does the chances of completing the cycle. Yesterday was consumer giant LVMH, which warned about consumers not just in the US and also in China. Talk about that in the context of this good recession, as well as the market reaction to it in the video link below. As always, say thank you very much for joining me. Check out the final days Euro dollar University's anniversary sale. Thank you to all you members and subscribers. Until next time, take care.

New GDP Report Shocks the Market (what you need to know)

Monetary science reborn. Rediscovering the principles of currency. Putting central banks where they belong. Welcome to Eurodollar University, your place for all things modern money and monetary science. The YouTube channel for Jeff Snider, from here you can begin to investigate all the ways in which the global monetary system impacts you: economy, politics, investments and more.