US gross domestic product (GDP) shrank again in the second quarter, raising risks of the world’s largest economy slipping into recession, months before a key election for Joe Biden.
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The contraction of GDP is 0.9% annualized, a measure favored by the United States, which compares the figures with those of the previous quarter and then projects the variation in GDP throughout the year, according to data released this Thursday by the United States Department . trade.
Weak growth was expected, after a 1.6% drop in the first quarter.
“It doesn’t look like a recession, in my opinion,” President Biden reacted, noting a “record” job market and business investment.
Treasury Secretary Janet Yellen also insisted that the US economy remains “resilient” even if it is “slowing down”.
“Most economists and most Americans have a similar definition of a recession: substantial job losses and massive layoffs. […] that’s not what we’re seeing right now,” the Treasury secretary told a news conference, noting 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 falling GDP.
The US central bank, the Fed, sharply hiked its key rates again on Wednesday to deliberately curb economic activity by reducing pressure on prices. Inflation reached a new record in June, with an annual 9.1%.
Fed Chairman Jerome Powell on Wednesday said “there is a way to reduce inflation while supporting a strong labor market,” saying the US economy “wasn’t in good recession shape right now.” despite “a slowdown in spending.”
METERme Yellen also assured that it would be “possible to curb inflation and maintain a strong labor market.”
Strong job market
The Commerce Department said the decline in GDP in the second quarter reflected declines in business investment and home purchases by households. Governments, both federal and local, also reduced their spending.
Consumption, the locomotive of American growth, held up, but it was thanks to spending on services, and in particular on rents, whose prices skyrocketed with inflation. Purchases of goods have decreased.
The drop in GDP in the quarter is 0.2% if we simply compare it with the previous quarter, the same as other advanced economies.
So, has the United States sunk into a recession or not? The debate, which had already been going on for several days, seems to have started again.
“I think we have to avoid a semantic battle,” M said.me Yelen. “When we say Americans are very concerned about the economy, I think their biggest concern is inflation,” he added.
“Sometimes people use the word recession to mean it’s really bad inflation,” he said.
“We doubt the economy is in a recession given the strength of the labor market,” Lydia Boussour and Kathy Bostjancic, economists at Oxford Economics, also said.
However, they noted that “the slowdown in domestic demand confirms that the economy is slowing rapidly against a backdrop of stubbornly high inflation and significant Fed tightening.”
The unemployment rate, at 3.6%, is very close to its pre-pandemic level, which was the lowest in 50 years, and employers are still struggling to hire.
“Magnitude of Decrease”
Only one body is authorized in the United States to officially determine periods of recession, the National Bureau of Economic Research (NBER), but it intervenes with a delay of several months.
“We consider a series of indicators,” the NBER details on its site, which also observes “the magnitude of the drop in activity.”
Meanwhile, the Biden administration is trying to put out the fire.
The opposition sees it as an attempt to manipulate the figures. “Scoop for Joe Biden: You can’t change reality by arguing over definitions,” the GOP responded.
The International Monetary Fund, for its part, has sharply revised down its growth forecast for the United States for 2022 and now only expects 2.3% (compared to 3.7% in April), advancing “weaker growth at the beginning of the year.”
US GDP contracted 3.4% in 2020 as a result of the COVID-19 crisis, before recovering 5.7% in 2021.
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