U.S. gross domestic product (GDP) contracted again in the second quarter, raising the risks of seeing the world’s largest economy plunge into recession, months before a key election for Joe Biden .
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The contraction in GDP is 0.9% at an annualized rate, a measure favored by the United States, which compares to the previous quarter and then projects the evolution over the whole year, according to figures released Thursday by the Commerce Department.
Weak growth was expected, after a decline, in the first quarter already, of 1.6%.
“It does not look like a recession, in my opinion,” reacted President Biden, highlighting a job market and “record” business investments.
Its finance minister Janet Yellen also hammered home 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 massive layoffs…that’s not what we’re seeing right now,” the agency said. Treasury Secretary at a press conference, highlighting the more than one million jobs created 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 corresponds to two consecutive quarters of decline in GDP.
The US central bank, the Fed, again drastically raised its key rates on Wednesday to deliberately slow economic activity in order to ease pressure on prices. Inflation reached a new record in June, at 9.1% over one year.
Its president Jerome Powell again assured on Wednesday “that there is a way to lower inflation while supporting a solid job market”, believing that the American economy “was not in recession now”, despite “a slowdown in spending”.
Ms. Yellen also assured that it would be “possible to slow inflation and maintain a strong labor 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 curbed their spending.
Consumption, the locomotive of American growth, held up, but 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 to the previous quarter, as do other advanced economies.
So, has the United States plunged into recession or not? The debate, which had already been raging for several days, seems to have started again.
“I think we have to avoid a semantic battle,” said Ms. Yellen. “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 that the economy is in recession given the strength of the labor market,” also said Lydia Boussour and Kathy Bostjancic, economists for 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 aggressive 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.
Only one body is authorized in the United States to officially determine the periods of recession, the National Bureau of Economic Research (NBER), but this comes with several months of delay.
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 IMF, for its part, has revised its growth forecast for the United States sharply downwards for 2022, and now only expects 2.3% (when it was still anticipating 3.7% in April), advancing “a growth weaker 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.