The US economy contracted 0.9% in the second quarter of the year, further fueling fears that the country is heading into a recession.
Thursday morning data from the Bureau of Economic Analysis, part of the Commerce Department, showed a second consecutive quarterly contraction in gross domestic product – the broadest measure of economic output.
Consecutive quarters of negative GDP are an informal definition of recession, but most economists point to a still-robust labor market, with 11 million job openings and an exceptionally low unemployment rate of 3.6%. They argue that a recession, should one occur, is still a long way off.
The report comes just a day after the US Federal Reserve raised its benchmark interest rate by 0.75% for the second consecutive time as it continues its efforts to rein in the worst surge in inflation in four decades.
With June’s consumer price index jumping 9.1% from a year ago, the Fed is aiming for a notoriously difficult “soft landing” – an economic downturn that manages to rein in soaring prices without trigger recession.
The strength of the U.S. labor market, Federal Reserve Chairman Jerome Powell said at a news conference on Wednesday, “makes you question the GDP data.”
Asked if he thought the United States was in a recession, Mr Powell said he didn’t, citing the “remarkably strong” labor market and adding “that doesn’t matter. sense” that the country is in a recession right now.
Powell also rightly noted that US GDP data is often revised at a later date. In its Thursday morning press release, the BEA noted that the GDP estimate was based on source data that was incomplete or subject to revision by the source agency and that the second estimate for the quarter will be released on August 25.
Speaking at the White House on Thursday alongside business leaders, President Joe Biden downplayed talk of a potential recession and said there was “no doubt” growth this year would be slower. than last year, when the economy was largely returning to normal after a year of Covid-19 related shutdowns.
“There’s going to be a lot of talk today on Wall Street and among pundits about whether we’re in a recession. But if you look at our labor market, consumer spending, business investment, we’re also seeing signs of economic progress in the second quarter,” he said.
The most widely accepted definition of a recession comes from the National Bureau of Economic Research, a group of economists whose Business Cycle Dating Committee defines it as “a significant drop in economic activity that spreads through the economy and lasts more than a few months”. .
The strength of the labor market is just one factor that skews the data, but the NBER often declares the onset of a recession long after the fact, so additional data and revisions should be watched closely.
In a statement from the White House, President Joe Biden said, “It is no surprise that the economy is slowing as the Federal Reserve acts to bring inflation down. But even as we face historic global challenges, we are on the right track and we will get through this transition stronger and safer. Our labor market remains historically strong, with an unemployment rate of 3.6% and more than one million jobs created in the second quarter alone. Consumer spending continues to grow.
Prior to the release of today’s data, forecasters polled by data firm FactSet had estimated that the country’s GDP recorded a tepid 0.8% annual gain between the start of April and the end of June. Others thought a more anemic level of 0.2% was possible.
The Federal Reserve Bank of Atlanta’s current GDP growth estimate, based on available economic data, signaled that a 1.2% decline in the second quarter was to be expected.
Today’s data, while still marking a decline in economic activity, is an improvement from the 1.6% decline recorded in the January-March quarter.
Yet such weak quarterly growth represents a drastic weakening from the 5.7% growth the economy achieved last year. This is the fastest calendar-year expansion since 1984, reflecting the strength with which the economy rebounded from the brief but brutal pandemic recession of 2020.
However, the first quarter figures were not as alarming as the headlines suggested, as a larger trade deficit caused by increased demand for foreign goods dragged down overall growth by 3.2%.
Digging into the details of Thursday’s release, the decline in real GDP in the second quarter reflected declines in inventory investment, housing investment, federal government spending, state and local government spending and business investments.
However, exports and consumer spending increased. Imports, which had such an impact on the first quarter figures, continued to rise, subtracting from total GDP.
Nevertheless, regardless of whether the data indicates that the United States is in recession or not, inflationary woes continue to impact the daily lives of Americans and the way to deal with it is to slow down the economy.
Speaking on Thursday morning, CNBC author and anchor Andrew Ross Sorkin observed that while things seem to be going in the wrong direction faster than expected, that’s what’s supposed to happen.
“I think it’s fair to say that’s what was supposed to happen if the Federal Reserve was going to do what it did, which was put its hands on the neck of the economy. trying to slow things down…and now it’s working,” he said on MSNBC. “It’s kind of a weird feeling to say that’s what we wanted, but now we’re going to have a slower economy.”
Mr. Sorkin noted that with the upcoming midterm elections, the word “recession” has become political football and Americans feel that things are now very different from 12 months ago, when the economy has recovered from the pandemic.
After the GDP data came out, markets held steady, Sorkin said, “largely because it’s now believed that the Federal Reserve won’t have to keep its hand on the neck of the government.” economy as she did.”
With additional reporting from The Associated Press
The Independent Gt