US GDP dips 0.9% in second quarter, indicating recession

US GDP posted its second straight quarterly decline – an alarming development that economists widely refer to as the definition of an economic slowdown.

The economy shrank by 0.9% in the second quarter, according to Commerce Department data, surprising economists who forecast it to grow 0.3%. The downtick came on the heels of a first-quarter report in which the US economy posted Astonishing drop of 1.6%,

While inflation rises to a 40-year high and buyers of the pound, the stock market is facing a protracted decline and the once booming US housing market Prices ready to drop There has been a decline in demand from buyers facing cash crunch.

Walmart and . Corporate earnings have also started getting affected with meta Among the companies giving weak results.

The GDP report – seen as a broad indicator of the performance of the US economy – was released a day after the Federal Reserve raised its benchmark interest rate. three-fourth percentage point For the second consecutive month to pacify inflation, which stood at 9.1% in June.

Real gross domestic product (GDP) declined at an annual rate of 0.9 percent in the second quarter of 2022.
Real gross domestic product (GDP) declined at an annual rate of 0.9 percent in the second quarter of 2022.
economic analysis bureau

The Fed’s sharp rate hikes have raised investor concerns about its ability to engineer a “soft landing” by controlling inflation without an economic slowdown. Meanwhile, businesses and consumers alike are facing the twin effects of inflation that has eroded their purchasing power and higher interest rates, making it more expensive to borrow money.

The fall in GDP came after assurances from top economic policymakers that the underlying economy is strong. Fed Chairman Jerome Powell indicated on Wednesday that he does not see the US economy in recession at the moment.

“I don’t think America is going through a recession right now, and that’s because there are a lot of sectors of the economy that are doing very well,” Powell told a news conference.

Treasury Secretary Janet Yellen has also dismissed the notion that a recession is already underway.

Yellen said, “You don’t see any signs now.” “A recession is a broad-based contraction that affects many sectors of the economy. We just don’t have that.”

Yellen said she would be “surprised” if the National Bureau of Economic Research announces a recession in the near future.

“I would be surprised if NBER will declare this period as bearish, even if it is two quarters of negative growth,” she said. “We have a very strong labor market. When you’re creating about 400,000 jobs a month, it’s not a recession.”

Investors worried about the Fed's ability to rapidly recover
Investors are increasingly concerned about the Fed’s ability to achieve a “soft landing.”

The National Bureau of Economic Research is viewed as an authority on recessions and defines them as “a significant decline in economic activity that extends across the economy and lasts for more than a few months.” While two straight quarters of decline in GDP is seen informally as a sign of recession, the NBER does not specify a specific time frame for its definition.

Americans have faced skyrocketing gas prices in recent months.
Americans have faced skyrocketing gas prices in recent months.

Meanwhile, the White House attempted damage control before the report was released. The Biden administration issued a blog post arguing that a recession was “unlikely” even if GDP declined for the second straight quarter.

“This is a desperate and shameful attempt to shift recession targets to prevent Biden from being labeled the president of the recession,” said Alfredo Ortiz, CEO of the Conservative Job Creators Network. “Americans don’t care about this technical definition, but have long suffered from skyrocketing gas prices and skyrocketing inflation.”

During her press briefing last Monday, White House Press Secretary Karine Jean-Pierre claimed that “economic indicators” in the labor market show the economy was “not in recession or even pre-recession.”

“Both sides have to spin it the way they have to spin, but two things can be true at once – that we just don’t know if it’s going to be a serious downturn or not, but we have technical What is incompletely and historically called a recession,” said David Bansen, chief investment officer at The Bunsen Group.

“There are a lot of good signs within the economy, but there are a lot of signs that are getting worse and there is no point in denying it,” Bansen said.

The spin of the Biden administration widely criticizedAlong with Michael Bury, the investor who correctly predicted the 2008 housing market crash, among those who criticized the White House’s response.

“The White House wants you to redefine a recession in which consumers are not borrowing on credit cards to pay inflation, and neither is the labor force inadequate for the size of the economy,” Bury said this week. Said in the beginning. “Gross Domestic Product on Thursday, it’s not like there’s anything wrong with it.”

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