The world’s largest economy contracted for a second consecutive quarter, although the slowdown has yet to be officially labeled a recession.
The United States recorded a drop in production of 0.9% at an annualized rate between April and June, while economists had forecast a rise of 0.5%.
The first data would meet the international criteria for a recession because the the first quarter also saw a contraction – by 1.6%.
But the country has an official arbiter of recessions — the National Bureau of Economic Research (NBER) — and it has yet to make such a judgment.
He defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in output, employment, real income and other indicators”.
Sky News’ US correspondent Mark Stone said: “There’s a lot of semantics about the definition of a recession, but two quarters of negative growth is definitely not good and by some definitions it’s the start. of a recession.
“I have to say that the Treasury Department in the United States strongly cautions against calling this a recession – they say ‘wait and see’ and they also point out that if this is the start of a recession, that’s very unusual, because the employment numbers in America are amazing right now.
“The number of jobs being created right now is huge.
“But compare 2022 in terms of GDP with 2021, where we saw 6.3% growth in the first quarter of last year, 6.7% growth in the second quarter.
“Now everything is in negative territory – worrying times, combined with extraordinary inflation.”
Job growth averaged 456,700 a month in the first half of the year, and the number of new claims for state unemployment benefits fell in the week ending May 23. July.
“We are on the right path”
US President Joe Biden listed a series of economic achievements, he said: “It doesn’t look like a recession to me.
He added: “It’s no surprise that the economy is slowing as the Federal Reserve moves to bring inflation down.
“We are on the right path and we will go through this transition stronger and safer.”
He also said a new $739 billion Inflation Cut Act would cut health care costs and be an investment in energy security.
It will also “restore fairness to the tax code…by forcing America’s biggest trading nations and corporations to pay their fair share with no new taxes for people earning less than $400,000 a year.”
“Experts, even some experts who have criticized my administration in the past, agree that this bill will reduce inflationary pressures on the economy,” he said.
“Listen, this bill is far from perfect. It’s a compromise. But it is, that’s often how we move forward, by compromise.
“And the thing is, my message to Congress is this: This is the strongest bill you can pass to reduce inflation, reduce the deficit, reduce health care costs, fight the crisis. climate and promote and promote energy security, all the time while easing the burdens faced by working class and middle class families.
“So pass it off, pass it off as the American people, pass it off as America.”
Analysis: Biden tells US ‘don’t panic’
Being President of the United States right now feels like a mole game.
Joe Biden teeters from crisis to crisis. And as problems are resolved or mitigated, others emerge.
He scored a big victory Wednesday night as one of his own senators finally backed his proposals on climate change — a big deal for Biden.
But then a tense phone call with the Chinese president first thing Thursday.
Xi Jinping told Mr Biden not to “play with fire” on Taiwan. Sip. The US-China relationship is by far the most important geopolitical relationship to manage and things are not going well.
From that candid plea, President Biden was then led straight to the White House podium to tell the American people “don’t panic” about the economy.
When is a recession not a recession? It was the next mole to hit. Yes, the economy has contracted for two consecutive quarters, but “don’t panic”.
It may look like a recession, feel like it to many, but it’s not, he said.
So what about that old cliché: when America sneezes, the world catches a cold? Pertinent?
There is no recession yet, says Wendy Edelberg, senior economist at the Brookings Institute in Washington. But hold on.
“What really worries me, and I suspect the rest of the world really worries, is if the real economy slows down in the United States, but inflation stays high. It’s the worst of both worlds. And that suggests we have darker days ahead.”
And that’s where the world catches a cold?
“Yes. I mean it’s when the United States is shivering under the covers with a fever and the rest of the world is worried about catching this disease.” she said.
Recession or not, economic balances are currently delicate and dependent on so many things, and at a time when things seem particularly unpredictable.
He then added in a White House statement: “If you look at our labor market, consumer spending, business investment…we are seeing signs of economic progress in the second quarter.
“The best thing we can do right now is put our economy in a better position to transition to stable and steady growth…”
Wall Street’s major indexes opened flat, but at noon EST the Dow Jones was up 0.69%, the S&P 500 was up 0.71% and the Nasdaq was up by 0.47%.
“The next few months will be crucial”
Rob Clarry, investment strategist at wealth manager Evelyn Partners, said the economic contraction was due to weak numbers for investment, government spending and inventories, although consumer spending – an important indicator of the underlying growth – have been maintained.
“The NBER is responsible for deciding this and the indicators it tracks include real personal income less government transfers, employment, various forms of real consumer spending and industrial production,” he said.
“None of these indicators point to a recession right now.
“The Federal Reserve continues to face a difficult balancing act to bring inflation down without hurting economic growth — and this data points to an increasingly narrow path for a soft landing.
“The next few months will be crucial to see if inflation abates.
“If it stays high, we’ll see the Fed continue to prioritize inflation over growth, bringing the US economy closer to a broader economic slowdown.”