In the US, the risks of a recession are increasing

US gross domestic product (GDP) contracted again in the second quarter, raising the risk that the world’s largest economy slips into recession months ahead of a key election for Joe Biden.

• Also read: The Fed is hitting hard to try to pull inflation out of the US economy

• Also read: The horizon for the global economy is darkening, the IMF warns

• Also read: The United States “will not experience a recession,” says Biden

The contraction in GDP is 0.9% on an annualized basis, a measure favored by the United States, which compares to the previous quarter and then forecasts developments for the full year, according to figures released by the Commerce Department on Thursday.

After a decline of 1.6% in the first quarter, weak growth was expected.

“It doesn’t look like a recession in my opinion,” President Biden responded, highlighting a labor market and “record” business investment.

Her Treasury Secretary, Janet Yellen, also stressed that the US economy remained “resilient” even as it “weakened”.

“Most economists and most Americans have a similar definition of a recession: significant job losses and massive layoffs … that’s not what we’re seeing right now,” the agency’s finance secretary said at a news conference, highlighting more than one million jobs, created in the last three months.

For her, the state of the country’s economic activity reflects “an economy in transition towards more stable and sustainable growth”.

The commonly accepted definition of a recession is two consecutive quarters of contraction in GDP.

The US Federal Reserve drastically increased its key interest rates again on Wednesday in order to deliberately slow down the economy and reduce price pressure. Inflation hit a new record in June at 9.1% over a year.

Its President Jerome Powell reiterated Wednesday “that there is a way to bring down inflation while supporting a solid job market,” believing that the US economy is “not in recession now,” despite “a slowdown.” of expenses”.

Ms Yellen also assured that it was “possible to slow inflation and maintain a strong labor market”.

The Commerce Department said the decline in GDP in the second quarter reflected the decline in business investment and household home purchases. Governments, both federal and local, also reined in spending.

Consumption, the engine of American growth, continued, but thanks to spending on services and especially rent, prices for which have soared with inflation. Purchases of goods have declined.

The decline in GDP over the quarter is 0.2% if we simply compare it to the previous quarter, as is the case in other advanced economies.

So is the United States in recession or not? The debate, which has been raging for several days, seems to have started again.

“I think we need to avoid a semantic battle,” Ms. Yellen said. “When we say that Americans are very concerned about the economy, I think their biggest concern is inflation,” she added.

“Sometimes people use the word recession to say it’s really bad inflation,” she said.

“We doubt the economy is in recession given the strength of the job market,” said Lydia Boussour and Kathy Bostjancic, economists at Oxford Economics.

However, they noted that “the slowdown in domestic demand confirms that the economy is decelerating rapidly amid stubbornly high inflation and aggressive Fed tightening.”

At 3.6%, the unemployment rate is very close to pre-pandemic levels, its lowest in 50 years, and employers are still struggling to hire new workers.

In the US, only one body is authorized to officially determine recession times, the National Bureau of Economic Research (NBER), albeit with a delay of several months.

We are “looking at a number of indicators,” says NBER on its website, which also monitors “the magnitude of the drop in activity.”

Meanwhile, the Biden administration is trying to put out the fire.

The opposition sees this as an attempt to manipulate the numbers. “Scoop for Joe Biden: You can’t change reality by arguing about definitions,” the Republican Party responded.

For its part, the IMF has significantly lowered its growth forecast for the USA for 2022 and now expects only 2.3% (whereas it had still assumed 3.7% in April) and thus “growth that was weaker at the beginning of the year”.

US GDP shrank by 3.4% in 2020 as a result of the COVID-19 crisis, before rebounding by 5.7% in 2021.

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