The US economy shrank somewhat more slowly in the second quarter than previously reported, but continued to meet the criteria for a so-called technical recession, as raging inflation and higher interest rates weighed on spending.
Gross domestic product, the broadest measure of goods and services produced in the entire economy, shrank 0.6% year-on-year in the second quarter, the Commerce Department said in its second reading of the data on Thursday. That is less than the 0.9% decline initially reported.
GDP already shrank by 1.6% from January to March, the worst performance since the spring of 2020, when the economy was deeply gripped by the COVID-induced recession.
According to the National Bureau of Economic Research (NBER), which tracks downturns, recessions are technically defined by two consecutive quarters of negative economic growth and are characterized by high unemployment, low or negative GDP growth, declining revenues and slowing retail sales.
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With successive declines in growth, the economy is meeting the technical criteria for a recession, which requires a “significant decline in economic activity that spreads across the economy and lasts for more than a few months.” Still, the NBER — the semi-official arbitrator — may not be able to confirm it immediately, as it usually waits up to a year to name it.
The NBER has also emphasized that it relies on more data than GDP to determine whether there is a recession, such as unemployment and consumer spending, which remained strong in the first six months of the year. It also takes into account the depth of any decline in economic activity.
“So real GDP could fall by relatively small amounts in two consecutive quarters without a determination that a peak had occurred,” the nonprofit said on its website.
The committee does not meet regularly, only when members decide it is justified.
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The latest downturn is the result of a number of factors, including declines in private inventories, investment in residential and non-residential businesses, and government spending at the federal, state and local levels. Those declines were offset by increases in net exports — the difference between what the US exports and what it imports — and consumer spending, which accounts for two-thirds of GDP.
The report found that consumers are spending much less than in the winter, with personal consumption spending rising just 1% over the period as high inflation persisted and affected Americans’ purchasing power.
The report will fuel a growing political crisis for President Biden, who has seen his approval rating collapse in tandem with a faltering economy, and could complicate the Federal Reserve’s policy path as it weighs how quickly interest rates should be raised to tame inflation. without crushing economic growth.
Central bank policymakers raised benchmark interest rates by 75 basis points for the first time since 1994 in June and July. They indicated that an increase of that magnitude is possible in September, depending on upcoming economic data.
Fed Chairman Jerome Powell told reporters last month that he does not believe the US economy is in recession.
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“I don’t think the US is in a recession right now, and the reason is too many parts of the economy are underperforming,” Powell said. “This is a very strong labor market. … It doesn’t make sense that the economy would be in a recession when things like this happen.
This is a story in development. Come back for updates.