U.S. GDP contracted again in the second quarter, raising 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, according to figures released Thursday by the Commerce Department. Weak growth was expected, after a decline, in the first quarter already, of 1.6%.
“It does not look like a recession, in my opinion,” reacted President Biden, highlighting a job market and “record” business investments. His finance minister, Janet Yellen, also insisted that the US economy remained “resilient”, even if it was “slowing down”. “Most economists and most Americans have a similar definition of a recession: substantial job losses and massive layoffs. […] that’s not what we’re seeing right now,” the Treasury Secretary told a press conference, highlighting the more than one million jobs created in the past three months.
For Janet Yellen, the state of the country’s economic activity reflects “an economy in transition towards more stable and sustainable growth”. Mme Yellen also assured that it would be “possible to bring down inflation and maintain a strong labor market”.
The Commerce Department said the decline in GDP in the second quarter reflected declines in business investment and household home purchases. Governments, both federal and local, also curbed spending. Consumption, the locomotive of American growth, held up, but thanks to spending on services, and in particular rents, the prices of which soared with inflation. Purchases of goods have declined.
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. “I think we have to avoid a semantic battle,” said Mme Yelen. “When we say that Americans are very concerned about the economy, I think their biggest concern is inflation,” she added. “Sometimes people use the word ‘recession’ to say it’s really bad inflation,” she interpreted.
“We doubt that the economy is in recession given the strength of the labor market”, also estimated Lydia Boussour and Kathy Bostjancic, economists for Oxford Economics. They observed, however, that “the slowdown in domestic demand confirms that the economy is slowing rapidly in a context of stubbornly high inflation and vigorous Fed tightening”.
The unemployment rate, at 3.6%, is very close to its pre-pandemic level, which was the lowest in 50 years, and employers are still struggling to recruit.