The American economy has entered a recession stage: the second quarter in a row the Department of Commerce records a fall in GDP. At the end of June, the US economy sank by 0.9%, while the market expected growth – by 0.5% of GDP. The department published the latest statistics on Thursday, July 28.
“The decline in GDP was caused by a drop in private investment, investment in fixed assets, as well as a reduction in federal government spending, state and regional government spending,” the US Department of Commerce said in a release.
Reuters, in its consensus forecast, expected US GDP to grow by 0.5% in the second quarter. Experts' estimates ranged from a hard fall (-2.1%) to a significant increase (2%). According to the results of the first quarter, the American economy has already fallen by 1.6%, which indicates the onset of a recession – that is, a non-critical slowdown in the economy. This is how a recession is interpreted , for example, by the Bank of England.
However, in the US, before the publication of data on GDP in the second quarter, a real discussion broke out about what is considered a recession and what is not. The head of the Federal Reserve System (FRS), Jerome Powell, announced on the eve of a rate hike of 0.75 percentage points, to 2.25-2.5%. During his speech, Powell repeatedly said that he "sees no real signs that the American economy is entering a recession." As arguments, he cited good indicators of the labor market and production indices, which, in his opinion, reflect economic growth.
Similarly, the National Bureau of Economic Research insisted that the recession has "visible manifestations" – a significant decline in economic activity over several months, visible in production, the labor market, real incomes and other indicators. US Treasury Secretary Janet Yellen recently gave a speech that the US economy is only slowing and not in recession. US President Joe Biden also denies a recession in the US economy.
The American labor market is indeed showing growth since the beginning of the year: according to the Department of Labor, the economy creates an average of 456.7 thousand jobs, which has a positive effect on incomes. However, the main downside risk is consumer spending, which is falling amid high inflation. Also, an additional indicator of the slowdown in the US economy is the construction industry: in July-June, construction and sales of new homes began to fall.