The US economy is contracting again, raising fears of a recession

US economy shrinks again, raising fears of recession

For US President Joe Biden, the current situation “does not look like a recession”.

The gross domestic product (GDP) of The United States contracted again in the second quarter, increasing the risks of seeing the world's largest economy plunge into recession, months before a key election for Joe Biden.

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.

Slow growth was expected, after a decline, in the first quarter already, of 1.6%.

The commonly accepted definition of a recession corresponds to two consecutive quarters of decline in GDP. But the current situation does not look like a recession, in my opinion, reacted Joe Biden. the U.S. economy remained resilient, albeit slowing.

Inflation hit a new high in June at 9.1% year on year. And slowing it down requires cooling economic activity.

However, it is possible to slow inflation and maintain a strong labor market, according to the Fed chair.

Most economists and most Americans have a similar definition of a recession: major job losses and mass layoffs, the Treasury Secretary told a news conference.

This is not what we are currently seeing, she pointed out, highlighting the more than one million jobs created in the last three months, and preferring to talk about an economy in transition to more stable and sustainable growth.

The opposition, however, castigates Joe Biden's recession. The economy has plunged for two quarters in a row, the Republican Party commented on Twitter.

The government just announced what every American has been feeling for nearly a year — we're in a recession, lamented House Republican leader Kevin McCarthy.

He also accuses the Democrats of [preferring] to redefine the recession than to restore a healthy economy.

The decline in GDP in the second quarter reflected lower business investment and home purchases by households, the Commerce Department said. Governments, both federal and local, also curbed spending.

Consumption, the engine of US growth, held up, but thanks to spending in services, in particular rents, the prices of which have soared with inflation. Purchases of goods, on the other hand, fell.

The decline in GDP for 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.

“We should avoid a semantic battle. Sometimes people use the word recession to say that it really is bad inflation.

— Janet Yellen, Secretary of the Treasury and Chair of the US Federal Reserve

We doubt that the economy is in recession, given the strength of the labor market, underline for their part, in a note, Lydia Boussour and Kathy Bostjancic, economists for Oxford Economics.

The unemployment rate, at 3.6%, is close to its pre-pandemic level, which was the lowest in 50 years, and employers are still struggling to recruit.

The decline in GDP reinforces stagflation [stagnation of activity and inflation], and triggers the red alert for the recession, warns on the contrary on Twitter the economist Mohamed El-Erian, president of Queens' x27; College of the University of Cambridge and economic adviser to the insurer Allianz.

Only one organization in the United States is authorized to officially determine the periods of recession: the National Bureau of Economic Research (NBER). However, its announcements come several months late.

We consider a series of indicators, details on its site the NBER, which also observes the extent of the decline activity.

The International Monetary Fund (IMF), for its part, has revised its growth forecast sharply downwards for the United States in 2022 and no longer expects more than 2.3%, while it still expected 3.7% in April.

US GDP contracted 3.4% in April. 2020 impacted by the COVID-19 crisis, before rebounding 5.7% in 2021.

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