The US economy contracted between April and June for the second consecutive quarter this year, at 0.9% YoY, entering what is considered a technical recession. The poor data follows a 1.6% year-on-year drop between January and March. Specifically, two consecutive quarters of declining gross domestic product (GDP) is an informal, though not definitive, indicator of a recession. The White House maintains that the world’s largest economy has not yet entered this field. However, official GDP data for the last quarter show the weakness of the entire US economy. Consumption has slowed, which has been influenced by the recent interest rate hike by the Federal Reserve.
Fed Chairman Jerome Powell himself and other economists have recently estimated that, although showing some weakening, the US economy is not yet in recession.
The White House is reluctant to apply one of the usual indicators of a recession, in this case that of two quarters of GDP contraction. More specifically, he pointed out thathe labor market remains in excellent health, with an unusually low unemployment rate of just 3.6%. There are indeed 11 million unfilled jobs, according to official data.
The four rounds of interest rate hikes by the Federal Reserve are already negatively affecting construction, which fell 14% year-on-year. Public spending has also been reduced.
On Wednesday, the Federal Reserve raised its benchmark interest rate by three-quarters of a point for the second consecutive time, in a bid to lower inflation. This exceeds 9%, and the American central bank wants to bring it down to 2%. It is true that Americans still use, although less aggressively. Thursday’s report showed consumer spending grew at an annual rate of 1% between April and June, compared with 1.8% in the first quarter and 2.5% in the last three months of 2021.
Business investment also fell in the second quarter, according to official data released on Thursday. Inventories fell as big businesses delayed restocking stores, sending GDP down two percentage points in the previous quarter.
As the President said after the economic data became known, “After last year’s historic economic growth and the recovery of all the private sector jobs that were lost during the pandemic crisis, no wonder the economy is slowing down while the Federal Reserve acts to reduce inflation. Biden denies the US is in a recession because, he argues, the job market is strong. “There is 3.6% unemployment and over a million jobs were created in the second quarter alone. Consumer spending continues to grow, pointed. For this reason, he added, the White House’s priority will be to continue to fight inflation.
Business investment also fell in the second quarter, according to official data released on Thursday. Inventories fell as big businesses delayed restocking stores, sending GDP down two percentage points in the previous quarter.
American dissatisfaction with the direction of the economy has dented President Joe Biden’s approval ratings and increased the likelihood in the polls that Republicans regain control of the Capitol in November’s midterm elections.
Fed rate hikes have already caused increased interest on credit cards and auto loans, and doubled the average 30-year fixed mortgage rate over the past year to 5.5. Home sales, which are particularly sensitive to changes in interest rates, have collapsed.
Regarding the definition of a recession, the National Bureau of Economic Research, a group of American economists, said that it is “a significant decline in economic activity that spreads throughout the world. economy and lasts more than a few months”.