The American economy declined at a slightly slower pace in the second quarter than previously forecast, but continued to meet the criteria for a so-called technical recession as runaway inflation and rising interest rates weighed on spending.
Gross domestic product, the broadest measure of goods and services produced across the economy, fell 0.6% on an annualized basis in the second quarter, the Commerce Department said Thursday in its second reading data. This is below the 0.9% decline initially reported.
GDP has already contracted by 1.6% in the January-March period, the worst performance since the spring of 2020, when the economy was in the grip of the COVID-induced recession.
Recessions are technically defined by two consecutive quarters of negative economic growth and are characterized by high unemployment, low or negative GDP growth, declining incomes and slowing retail sales, according to the National Bureau of Economic Research (NBER ), which tracks slowdowns.
With consecutive declines in growth, the economy is meeting the technical criteria of a recession, which requires a “significant decline in economic activity that spreads throughout the economy and lasts for more than a few months.” Still, the NBER – the semi-official arbiter – may not confirm it immediately as they usually wait up to a year to call it.
The NBER also pointed out that it relies on more data than GDP to determine if there is a recession, such as unemployment and consumer spending, which remained strong in the first six months of the crisis. year. It also takes into account the magnitude of any decline in economic activity.
“Thus, real GDP could decline by relatively small amounts in two consecutive quarters without warranting the determination that a peak has occurred,” the nonprofit organization said on its website.
The committee does not meet regularly, only when members decide it is warranted.
The latest slowdown stems from a number of factors, including lower private inventories, residential and non-residential investment, and government spending at the federal, state and local levels. Those declines were offset by increases in net exports — the difference between what the United States exports and what it imports — as well as consumer spending, which accounts for two-thirds of GDP.
The report showed consumers are spending far less than they were in winter, with personal consumption spending rising just 1% for the period, as high inflation persisted and eroded the power of purchase from the Americans.
The report will fuel a growing political crisis for President Biden, who has seen his approval rating plummet in conjunction with a faltering economy, and could complicate the Federal Reserve’s policy trajectory as he weighs how quickly to raise interest rates. interest in order to control inflation without crushing economic growth.
Central bank policymakers raised the benchmark interest rate by 75 basis points in June and July for the first time since 1994. They signaled that another hike of this magnitude is possible in September, depending on upcoming economic data.
Fed Chairman Jerome Powell told reporters last month that he did not believe the US economy was in recession.
“I don’t think the United States is currently in a recession, and the reason for that is that there are too many sectors of the economy that are doing too well,” Powell said. “It’s a very strong labor market. … It doesn’t make sense for the economy to be in a recession with this kind of thing going on.
This is a developing story. Please check for updates.