The United States entered a technical recession this week, with a contraction in the second quarter of 2022 of 0.9%, according to preliminary data from the Commerce Department. Immediately, the most sinister have come to the fore to announce the dire effects of an economic contraction, but top US economic officials are at pains to stress that pessimism must be banished because the current situation, if not not good, is far from being too bad as the term reminds us recession.
It is true that economics textbooks define a recession as two consecutive quarters of negative growth. But at the end, As noted by Fed Chairman Jerome Powella few days ago, “many sectors of the economy are doing quite well”, unemployment remains near a 50-year low at 3.6%, wage data is strong and growth is certainly down because “it was extraordinarily low last year, 5.5%.”
“If you look at our labor market, consumer spending, business investment, we’re seeing signs of economic progress in the second quarter,” President Joe Biden said on Thursday. To this must be added a strong dollar, the public investment programs that have been approved in the country in recent months, such as the semiconductors and of infrastructureand the very fact that inflation seems to be reaching its ceiling after the acceleration of the central bank’s restrictive policies.
In a way, American institutions refuse to talk about a recession so as not to drift towards a self-fulfilling prophecy. If the image in the consumer’s mind is one of a long period of economic downturn and an increasing possibility of losing their job, they will reduce their spending items, reduce their consumption and reduce business income, which which can make the situation worse.
Hence, it is about the negative connotation of the word and its consequences on the spending forecasts of consumers and investors, be they individuals or businesses. But here is the big difference: in the past recessionsthe country’s macroeconomic figures have reached heights that seem unthinkable in the current context.
The United States, a country of full employment
During the 15 periods of recession that the country has gone through since the Great Depression of 1929, the unemployment rate has fluctuated between 5.2% and 24.9%. Currently, in the United States, there are 5.9 million unemployed, which represent 3.6% of the total. To reach the minimum of 5.2% unemployment that has been recorded in the recessions of the last century, an additional 2.5 million people would have to lose their jobs (to match the high end of the range, an additional 35 million would have to lose their jobs). employment).people).
However, the evolution of the labor market in the country in recent months does not seem to be going in this direction. The unemployment rate decreased slightly among men over 20, it increased slightly among women in the same age group and it worsened a little more among workers aged 16 to 19. In addition, the number of long-term unemployed continues to fall and the fastest growing is the number of unemployed who have been out of work for less than five weeks.
Decline in GDP
As we said, the US economy has fallen for two consecutive quarters. But the first thing to note is that the contraction in the second quarter (0.9%) is significantly lower than that of the first (1.6%). The trend looks positiveand in the Fed’s projections for the whole of 2022, they ventured 1.7% growth this year, and the same percentage for 2023.
In the last century, there have been occasional low-intensity recessions like those that could be expected on this occasion. This was the case in 2001, with a reduction in growth of only 0.3%, and in 1969, when the economy contracted by 0.6%. The opposite case, of a brief but very intense recession, occurred precisely at the start of the coronavirus pandemic, when US GDP fell by 19.2% in a few months.
Parallels to World War II
Therefore, while each situation is unique, it seems that the clearest historical comparison with the current landscape is the post-World War II recession. The strong economic growth that the country experienced in the aftermath of the war, despite the disproportionate cuts in public spending, led to uncontrolled inflation, with consumers incurring medium and long-term expenses (such as household appliances and automobile) that they had postponed during the war conflict of war.
A similar picture is playing out today, as families’ savings during the pandemic have been spent in recent months on substantial purchases. The recovery programs central banks to cushion the economic blow of Covid-19 has also injected excess liquidity into the system which has overheated economies. In the present case, moreover, the problems with the supply chain and the rising cost of energyamong other things, for Russia’s invasion of Ukraine.