Deutsche: Slowing Momentum Suggests Technical Recession

Deutsche Bank now sees Q2 US GDP falling by 0.6% Q/Q annualized, "leaving the economy in the midst of a technical recession", with full-year growth of +0.6% Q4/Q4.

• Their proprietary economic momentum indicator shows a "near stalling" in domestic growth momentum, namely final sales rising only about 1% annualized in Q2-Q3: "there are not many historical episodes where final sales growth slows that meaningfully without falling into a recession."
• "While our base case has been that a still-solid labor market will allow for positive growth throughout the remainder of this year, we are becoming increasingly concerned that weakness spreading throughout other sectors of the economy will spill over into the labor market and services sectors this year. If that happens, a so-far unemployment-less recession would likely turn into a more traditional contraction that complicates the Fed's tightening plans. This dynamic could well short-circuit the Fed's hiking cycle before it reaches our current terminal rate expectations."
• Note that it's not clear they are officially changing their standing call for recession in mid-2023, and are repeating their view that "the risks remained skewed towards an earlier recession". There's been some debate about whether a two-quarter contraction meets the definition of "recession", with many pointing to the slightly more ambiguous NBER definition.