I don’t want to sound like a broken record, repeating myself week after week, but the question of whether the economy is headed into a recession just ahead – or maybe is already in one – is the overriding question of the day for economists, business leaders and investors. We need to be looking at any and all clues we can to try to answer this question.

Yesterday morning, the Commerce Department reported that 1Q Gross Domestic Product fell at an annual rate of -1.6%. That was a tad weaker than its previous estimates of -1.5% but no big surprise. We’ve known GDP growth was negative in the 1Q for several weeks. The big question now is, what’s the economy doing this quarter?

This question is particularly important now because if GDP growth is negative in the 2Q, that will mean two consecutive quarters of negative GDP – which is the definition of a recession. As I wrote in Forecasts & Trends on Tuesday, we won’t get our first look at the Commerce Department’s advance estimate of 2Q GDP until July 28, and that’s a long time to wait.

So what other clues can we look at in the meantime? One obvious place to look is retail sales, and the latest report is not encouraging. On June 15, the Commerce Department reported that retail sales unexpectedly fell 0.3% in May as motor vehicle purchases declined amid rampant shortages and record-high gasoline prices pulled spending away from other goods. Excluding gasoline, retail sales fell a whopping 0.7% in May.

This was the first actual decline in retail sales this year and the pre-report consensus among leading economists was for a gain of 0.2%, so the decline of 0.3% last month came as a surprise. The Commerce Department also revised its estimate of April retail sales down from +0.9% to +0.7%.

The trend in the chart above obviously does not look good. May’s weaker than expected retail sales and the downward revisions to April data confirm consumption is slowing in the second quarter. But does that mean we’re in a recession now? Not necessarily. One month does not make a trend, but it appears we are headed in that direction.

Remember that consumer spending makes up nearly 70% of GDP, and the fact that consumers actually cut spending in May is not a good sign. Hopefully, retail sales rebounded this month, but we won’t get that report until the middle of July.

The decline in monthly retail sales in May was led by receipts at auto dealerships, which dropped 3.5%, the largest fall in nearly a year, after increasing 1.8% in April. China’s zero COVID-19 policy has exacerbated a global semiconductor shortage, and cars remain in short supply. This situation is not expected to go away anytime soon.

The National Retail Federation said the weak sales in May reflected consumers’ growing concerns about inflation and underscored the need for the White House to scrap tariffs on Chinese goods.

Another indicator of consumer spending is the Personal Consumption Expenditures Index (PCE). While most economists and even the Fed watch the PCE for trends in inflation, it is also another good indicator of consumer spending overall. The Commerce Department reported this morning that PCE rose 0.2% in May, which was below the pre-report consensus of +0.4%. However, real PCE, adjusted for inflation, fell 0.4% last month, marking its first actual decline this year. Here, too, one month does not make a trend, but it is worrisome.

So where do we stand? The US economy has slowed significantly this year. This should surprise no one given that the unprecedented government stimulus programs we saw last year have ended. GDP declined at an annual rate of 1.6% in the 1Q. We won’t get our first look at 2Q GDP until July 28.

That report will be especially important because if it shows the economy declined again in the 2Q, it will mean the economy has declined two consecutive quarters, which is the widely held definition of a recession. Most economists surveyed by Bloomberg do not expect the economy contracted again in the 2Q, but most pre-report estimates have GDP growth up only fractionally (ie – less than 1%).

I continue to believe the US economy is not in a recession yet, and growth will be at least mildly positive for the 2Q. This remains to be seen, of course. The bottom line is, that whatever we see on July 28 is likely to be a weak number, and if consumers start to pull back on spending, then we could be in a recession by the end of this year or early next year.