US On The Brink Of Recession As GDP Declines In Q2

There was an unexpected contraction in the economy of the United States in the second quarter, as consumer spending grew at its slowest pace in about two years.

There was also a decrease in business spending, which fueled concerns that the world’s largest economy is at the brink of an economic recession.

GDP declines

On Thursday, a report from the Commerce Department showed that the gross domestic product had declined for the second quarter in a row.

The report was a reflection of businesses accumulating inventory at a more moderate pace because of the motor vehicles shortage, but there was weakness in the economic profile with just exports offering some relief.

This could put a hitch in the plans of the US Federal Reserve about hiking its interest rates aggressively, as it tries to tame the stubbornly high inflation.

On Wednesday, the US central bank hiked its interest rate by three-quarters of a percentage point, which means that it has hiked the interest rate by 225 basis points since March.

Market analysts said that this makes the US economy vulnerable to a recession, which could prevent the Fed from making another large rate hike in its September meeting.

There was a 0.9% decline in the GDP for the second quarter, which had been forecasted to grow at a rate of 0.5%.

The first quarter had seen a contraction in the GDP by 1.6%, translating into a ‘technical recession’.

Economic recession

However, economists, the White House, and the Fed all claim that the economy is not in recession, taking into account broader measures of activity.

The official judge of recessions in the US, the National Bureau of Economic Research, considers a recession to be a major decline in economic activity spread across and lasting for more than a couple of months.

It should also be visible in real income, employment, production, and other indicators. There was a growth in domestic demand in the first half of 2022.

Meanwhile, there was a growth of jobs of about 456,700 per month during this time span. Analysts said that while domestic demand had slowed down, but this does not signal a recession.

Elections ahead

Congressional elections are scheduled to take place on November 8th, which will decide if the Democratic Party of President Joe Biden will retain the US Congress’ control or not.

Therefore, the White House has been making attempts to calm the votes down. Janet Yellen, the Treasury Secretary, attempted to do the same.

She touted the achievements the administration has made in the previous 18 months. These include the strong gains in employment seen after massive job losses at the peak of the COVID-19 pandemic.

She said that the US economy is a ‘resilient’ one, but acknowledged that there was a slowdown and there were numerous risks.

Speaking at a news conference, Yellen said that the report highlights that the economy is making a transition towards sustainable growth and also said that the recession should not be considered inevitable.