U.S. gross domestic product (GDP) contracted once more in the second quarter, raising the risks of the world’s largest economy plunging into recession, months before a key election for Joe Biden .
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The contraction in GDP is 0.9% annualized, a measure favored by the United States, which compares the figures to those of the previous quarter and then projects the change in GDP over the full year, according to data released Thursday. by the United States Department of Commerce.
Weak growth was expected, following a decline of 1.6% in the first quarter.
“It does not look like a recession, in my opinion”, reacted President Biden, highlighting a job market and “record” business investments.
Treasury Secretary Janet Yellen also insisted that the US economy remained “resilient” even if it was “slowing down”.
“Most economists and most Americans have a similar definition of a recession: substantial job losses and mass layoffs […] that’s not what we’re seeing right now,” the Treasury Secretary said at a press conference, noting the creation of more than a million jobs over 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 decline in GDP.
The US central bank, the Fed, once more drastically raised its key rates on Wednesday to deliberately slow down economic activity by reducing pressure on prices. Inflation reached a new record in June, at 9.1% over one year.
Fed Chairman Jerome Powell reassured on Wednesday that “there is a way to lower inflation while supporting a strong job market,” saying the US economy “was not in good shape. recession now”, despite “a slowdown in spending”.
Mme Yellen also assured that it would be “possible to slow inflation and maintain a strong labor market”.
Solid job market
The Commerce Department said the decline in GDP in the second quarter reflected declines in business investment and household home purchases. Governments, both federal and local, also curbed spending.
Consumption, the locomotive of American growth, held up, but it was thanks to spending on services, and in particular rents, the prices of which 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 do other advanced economies.
So, has the United States plunged into a recession or not? The debate, which had already been raging for several days, seems to have started once more.
“I think we have to avoid a semantic battle,” said Mme Yelen. “When we say that Americans are very concerned regarding 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,” also said Lydia Boussour and Kathy Bostjancic, economists at Oxford Economics.
They observed, however, that “the slowdown in domestic demand confirms that the economy is slowing rapidly in a context of stubbornly high inflation and significant tightening by the Fed”.
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 recruit.
“Magnitude of decline”
Only one body is authorized in the United States to officially determine the 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”, details on its site the NBER, which also observes “the extent of the decline in activity”.
In the meantime, 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,” responded the Republican Party.
The International Monetary Fund, for its part, has revised its growth forecast for the United States sharply downwards for 2022 and now only expects 2.3% (compared to 3.7% in April), advancing “weaker growth at the start of the year”.
US GDP contracted 3.4% in 2020 as a result of the COVID-19 crisis, before rebounding 5.7% in 2021.
