US economy shrinks again, fueling recession fears

US economy shrinks again, fueling recession fears

US economy shrinks again, fueling recession fears

U.S. gross domestic product (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, 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.

Weak 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 many economists, as well as the administration of President Joe Biden, say the economy is not in recession because of other more favorable indicators, such as employment.

The American economy is “on the right track”, assured the American president in a press release on Thursday, judging that it “is not surprising” that it “is slowing down as the Federal Reserve acts to reduce inflation” .

Joe Biden is due to speak on price hikes at 12:00 p.m. (4:00 p.m. GMT) from the White House.

The US central bank, the Fed, again drastically raised its key rates on Wednesday to deliberately slow economic activity in order to ease pressure on prices. Inflation reached a new record in June, at 9.1% over one year.

Its president Jerome Powell again assured Wednesday “that there is a way to lower inflation while supporting a solid job market”, believing that the American economy “is not in recession now”, despite “a slowdown in spending”.

Economy and Finance Minister Janet Yellen will hold a press conference at 1:30 p.m. (5:30 p.m. GMT).

– Solid job market –

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

The decline in GDP over 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, will thus be able to start again.

It is “disappointing but (it) does not mean that the economy is in recession”, observes Andrew Hunter, economist for Capital Economics, specifying that the decline is also due to unsold inventories, which represent a cost for companies. .

“We doubt that the economy is in recession given the strength of the labor market”, also believe Lydia Boussour and Kathy Bostjancic, economists for Oxford Economics.

They observe, however, that “the slowdown in domestic demand confirms that the economy is slowing rapidly in a context of stubbornly high inflation and aggressive tightening by the Fed”.

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.

– “Magnitude of the decline” –

Only one body is authorized in the United States to officially determine the periods of recession, the National Bureau of Economic Research (NBER), but this comes with several months of delay.

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

The Biden administration is trying to put out the fire.

“What a recession really means is a general contraction of the economy. And even if this figure is negative, we are not in a recession now, ”said Janet Yellen on Sunday.

But the opposition sees it as an attempt to manipulate the numbers. “Scoop for Joe Biden: you can’t change reality by arguing over definitions,” reacted the Republican Party.

The IMF, for its part, has revised its growth forecast for the United States sharply downwards for 2022, and now only expects 2.3% (when it was still anticipating 3.7% in April), advancing “a growth lower at the start of the year.

US GDP contracted 3.4% in 2020 as a result of the Covid-19 crisis, before rebounding 5.7% in 2021.

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