Although the world’s largest economy is experiencing a contraction for the second consecutive quarter, it has not been officially called a recession.
Between April and June, the US saw a 0.9% decrease in annualized output. Economists had predicted an increase of 0.5%.
Because the quarter saw a contraction of 1.6%, the early data would be considered to have been in recession.
The country does have an official arbiter of economic recessions, the National Bureau of Economic Research (NBER), but it has yet to make such an assessment.
A recession is defined as “a significant decline in economic activity spread throughout the economy, lasting longer than a few months, normally noticeable in production, employment and other indicators”.
Sky News US correspondent Mark Stone stated: “There are many semantics about what a recession is. But two quarters of negative economic growth is certainly not good. Some definitions even call it the beginning of a depression.”
“I should mention that the US Treasury Department is cautioning against calling it a recession. They are saying ‘wait’ and pointing out that if this is the beginning of recession, it’s an unusual one because the job numbers in America at the moment are exceptional.
“The current number of jobs created is enormous.”
“But, compare 2022 in terms GDP with 2021. We saw 6.3% growth last quarter, and 6.7% growth the second quarter.
“Now it’s all negative territory – worrying time, combined with extraordinary inflation.”
In the first half, job growth was on average 456,700 per monthly. The number of claims for state unemployment benefits dropped in the week ending 23 juillet.
“We are on the right track”
US President Joe Biden outlined a number of economic achievements and said that it didn’t sound like a recession.
He said, “It’s not surprising that the economy is slowing as the Federal Reserve acts against inflation.
“We are on a right track and will make this transition more secure and stronger.
He said that a $739bn new Inflation Reduction Act, which would lower healthcare costs and invest in energy security, would also be a good investment.
He said that it would restore fairness in the tax code by making large corporations pay their fair share of American taxes without any additional taxes for people earning less than $400,000 per year.
He stated that “experts, even those who have criticised my administration before, agree that the bill will reduce inflationary pressures in the economy.”
“This bill is far from perfect. It is a compromise. It is, and it is often how we make progress, through compromises.
“And the truth is, my message to Congress: This is the strongest bill that you can pass to lower the inflation, cut the deficit and reduce health care costs, address the climate crisis and promote and support energy security all while reducing the burdens on the working class and the middle class.
“So, pass it, pass for the American people, and pass it to America!”
Analysis: Biden tells US ‘don’t panic’
Right now, being the US President feels like a game.
Joe Biden is prone to bouncing from one crisis into another. As problems are resolved or eased, new ones emerge.
Biden scored a major win Wednesday night when one of his Senators voted in favor of his Climate Change plans – which was a huge deal for him.
The President of China called me first thing Thursday morning. It was a very tense call.
Xi Jinping warned Mr Biden to not “play with fire” over Taiwan. Gulp. Gulp.
After that honest call, President Biden went straight to the White House podium to tell Americans to “don’t panic about the economy.”
What is the difference between a recession and a normal recession? This was the next thing to do. The economy contracted in two quarters consecutively, but don’t panic.
He said that it may seem like a recession and feel like one to many. But, it’s not.
What about the old cliche that when America sneezes, everyone gets a cold? Relevant?
According to Wendy Edelberg, senior economist at Washington’s Brookings Institute, there is no recession. But don’t panic.
“What I am most worried about and what I suspect the rest is worried about is the US’s slowing real economy, while inflation remains high. This is the worst possible scenario. It suggests that there are darker days ahead.
The world can catch a cold at this time.
“Yes. That is when the US is feverish and the rest is concerned about contracting the disease. She told me.
Recession or no, the current economic balances are fragile and dependent on so many things, at a time when everything seems very unpredictable.
In a White House statement, he added: “If we look at our employment market, consumer spending and business investment…we see signs of economic growth in the second quarter.
“The best thing that we can do is put our economy in better position to transition to stable steady growing
Wall Street’s major indexes opened flat, but at noon (eastern), the Dow Jones was up 0.699%, the S&P 500 was 0.71% and the Nasdaq was up 0.4%.
“The next few months are crucial”
Rob Clarry, an investment strategist at Evelyn Partners, stated that the economic contraction was caused by low readings for investment and government spending. However, consumer spending, which is an important indicator of underlying growing, held up.
He said that the NBER was charged with this task and the indicators it tracks are real personal income minus transfers from government, employment and various forms of real consumer spending.
“None” of these indicators point to a recession right now.
The Federal Reserve faces a difficult balance act to bring down inflation while not causing economic growth. This data suggests that there is no easy way to get to a soft landing.
“The next few weeks will be critical in determining whether inflation eases.
“If it stays elevated, we will continue to see the Fed prioritise inflation over growth. This will push the US economy closer towards a wider economic slowdown.”