The American economy fell in the spring for the second consecutive quarter, meeting the criteria for a so-called technical recession, as runaway inflation and higher interest rates forced consumers and businesses to cut spending.
Gross domestic product, the broadest measure of goods and services produced in the economy as a whole, fell 0.9% on an annualized basis in the three-month period from April to June, a the Commerce Department said Thursday in its first reading of the data. Refinitiv economists expected the report to show the economy grew by 0.5%.
Economic output has already fallen in the first three months of the year, with GDP falling 1.6%, the worst performance since spring 2020, when the economy was still in the grip of the COVID-induced recession. .
“Policymakers will no doubt focus on trying to explain why the US economy is not in recession,” said Seema Shah, chief global strategist at Principal Global Investors. “However, they make a strong point. While two consecutive quarters of negative growth is technically a recession, other more recent economic data is not consistent with a recession.”
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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 meets the technical criteria for 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 arbitrator – may not confirm it immediately as they usually wait up to a year to call it.
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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 persists and erodes people’s purchasing power. 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 policy trajectory of the Federal Reserve as it 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 he did not believe the U.S. economy was in a 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.”
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