US gross domestic product (GDP) contracted again in the second quarter, raising risks that the world’s largest economy plunges into recession months before a key election for Joe Biden.
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The contraction in GDP is 0.9% on an annualized basis, a metric favored by the United States, which compares the numbers to the previous quarter and then projects the change in GDP for the full year, according to data released by the US Department on Thursday Of the trade.
Weak growth was expected after a 1.6% decline in the first quarter.
“It doesn’t look like a recession in my opinion,” President Biden responded, highlighting a labor market and “record” business investment.
Treasury Secretary Janet Yellen also stressed that the US economy remains “resilient” even as it “weakens”.
“Most economists and most Americans have a similar definition of a recession: significant job losses and mass layoffs […] we don’t see that at the moment,” the finance minister said at a press conference, referring to the creation of more than a million jobs in the past 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 by reducing price pressure. Inflation hit a new record in June at 9.1% over a year.
Fed Chair Jerome Powell on Wednesday assured that “there is a way to bring inflation down while supporting a strong job market,” and said the US economy is “not in good shape now” despite “a slowdown in economic activity.” Expenditure”.
Mme Yellen also assured that it is “possible to lower inflation and maintain a strong labor market”.
Solid 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, persisted, but that was thanks to spending on services, particularly 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 have to avoid a semantic fight,” said Mme Jelen. “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 labor 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 significant tightening by the Fed.”
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.
“Extent of Decline”
In the United States, only one body has the authority to officially determine recessionary periods, the National Bureau of Economic Research (NBER), but it comes 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 International Monetary Fund has sharply revised its 2022 growth forecast for the United States downwards, now expecting just 2.3% (up from 3.7% in April), pushing for “weaker growth at the start 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.