US gross domestic product (GDP) shrunk between April and June, the Commerce Department reported, marking the second-straight quarter of economic contraction.
GDP fell at a yearly pace of 0.9% in the second quarter, according to the Commerce Department’s first estimate of economic growth over the previous three months.
“The US economy is struggling,” Scott Hoyt, senior director at Moody’s Analytics, wrote in a Thursday analysis.
“We now expect growth to struggle to reach potential both this year and next. However, we don’t believe the economy is in a recession,” he continued.
Many economists expected GDP to fall for a second consecutive quarter as the economy faced more pressure from high inflation, rising interest rates, slowing job growth, falling home sales and other headwinds.
While the economy was almost certain to slow after growing 5.7% in 2021, experts have become more fearful of the US slowing into a recession after GDP fell at an annualized rate of 1.6% in the first quarter.
Two straight quarters of negative economic growth have long been used as a rule of thumb to determine when the US is in recession and is the formal threshold for a recession in other countries. But economists in the US consider a broader range of data when determining if the US is in recession.
“The headline of a second straight decline in real GDP highlights the abrupt change in the path of the US economy, but the ongoing strength in the job market and other signs of growth make it unlikely that this will be categorized as a recession at this point,” said Mike Fratantoni, chief economist for the Mortgage Bankers Association, in a Thursday analysis.
A steep decline in business investment and a 3.1% surge in imports, which detract from GDP in calculations, were the two major forces behind the second quarter decline.
“The data fits with our view that the rate of US economic growth will slow noticeably this year, as households and businesses grapple with record high inflation and a steep rise in interest rates,” Cailin Birch, a global economist at the Economist Intelligence Unit, said in a Thursday analysis.
President Biden and White House officials have tried to convince Americans that the US economy is not yet in a recession thanks to a strong job market. They’ve focused heavily on the NBER’s definition of a recession to show Americans that the economy is not as weak as it may seem.
“It’s no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation. But even as we face historic global challenges, we are on the right path and we will come through this transition stronger and more secure,” Biden said in a Thursday statement.
Republican lawmakers were quick to release their own declarations of recession. They blamed Biden for driving the economy into ruin and accusing the White House of trying to dupe the American people.
“As Biden and his Democrat allies in Congress busy themselves with changing the definition of a recession, Americans continue to shoulder the burden of troublesome economic conditions,” Rep. Blaine Luetkemeyer, the ranking member on the House Small Business Committee, said in a Thursday statement.
The Federal Reserve is likely to keep boosting interest rates as inflation rises, which will continue to slow the economy, as the war in Ukraine and pandemic-related supply chain challenges threaten to make inflation worse.
“Whether the economy meets the conventional or formal definition of recession is in many respects immaterial. Either way, households and firms are reeling from combined energy, inflation, and rate shocks that have damped individuals’ purchasing power and are in the process of reducing household living standards,” wrote Joe Brusuelas, chief economist at audit and tax firm RSM.
“That is the toll levied by the inflation tax and is why it is critical to restore price stability to the economy as soon as is reasonably possible,” he continued.
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