August 13, 2022

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US in technical recession: GDP at -0.9%, worse than expected

The US economy contracted at an annual rate of 0.9% between April and June, the second consecutive negative growth and a strong new sign of a recession looming if it has not yet arrived.
The data, in the absence of revisions, shows at least a “technical stagnation”. According to records, the only case of a six-month GDP slump that didn’t turn into a recession dates back to 1947.

Depression nightmare

The official verdict in the big “R” will now be the National Bureau of Economic Research, which is expected to issue its verdict in just months. To punish it, Nber takes into account a range of metrics that go beyond GDP, beginning with occupation, which show a widespread and deep crisis. This will be the second for the United States in just two years. The economy, which has already recovered from a 1.6% contraction, in the last quarter was worse than the average forecast, which assumed that it would succeed in achieving a minimum growth of 0.3 percent. S&P Global summed it up, “The party’s over.”

Recent economic activity has been impacted by a decline in business inventories, subtracting two points from the trend in GDP. There are also residential real estate investments down 14%, and cuts to public spending. Consumer spending, which accounts for more than two-thirds of output, slowed sharply to 1%, with Americans suffering from inflation for the entire quarter of 8.6%.

Personal income, net cost of living, fell by 0.5 percent, and President Joe Biden took advantage of the bad situation, denying that the country was heading toward a serious crisis. “It is not surprising that the economy is slowing down as the Federal Reserve intervenes to fight inflation,” he said. But even in the face of historical global challenges, we are on the right track and we will overcome this transitional phase stronger and safer.” However, the administration is inviting us to look beyond the dry GDP figure: “There is no major economic slowdown or job losses,” said US Treasury Secretary Janet Yellen, while highlighting that there are “many risks in the horizon, many of which are global.” .

Federal Reserve pressure

The Fed launched its most aggressive monetary tightening campaign since the 1980s, culminating in two 75 basis point rate moves in June and July, though it indicated it could now adjust the hikes in anticipation of their full tangible effects. Analysts expect another 50 pips possibly in September and 25 in November and December. Central Bank President Jerome Powell himself admitted that if the ideal remained a soft landing, avoiding high unemployment and recession would be difficult.