US Economy Is Contracting Once More, Raising The Prospect Of A Recession

The US economy shrank for the second quarter in a row, a milestone that would be called an economic recession in many other countries. That is not the case in the United States, where the decision is made using additional data.

However, the contraction, at an annual rate of 0.9 percent in the three months to July, has gained considerable notice as economic concerns rise. Prices for groceries, gasoline, and other necessities are rising at their quickest rate since 1981.

Fears of a recession are growing as the US central bank hikes borrowing prices swiftly to attempt to calm the economy and reduce pricing pressures, if one has not already begun.

Faced with dwindling public trust, US President Joe Biden has attempted to argue that the economy is still in good shape, noting that the unemployment rate is at a low 3.6 per cent and hiring has been high.

“If you look at our job market, consumer spending, business investment – we see signs of economic progress,” Mr Biden said Thursday, noting the historic post-pandemic gains the US experienced last year. “There’s no doubt we expect growth to be slower than last year …. That’s consistent with a transition to stable, steady growth and lower inflation.”

He assured reporters this week, ahead of the Commerce Department’s data, that the economy was “not going to be in a recession.” This spurred his Republican opponents to accuse the White House of attempting to redefine the phrase.

“White House recession ‘rebrand’ won’t reduce Americans’ suffering,” they said.

The US economy shrunk at an annual rate of 1.6 per cent in the first three months of the year. Economists at the time blamed the drop in gross domestic product (GDP) on anomalies in trade data.

However, Thursday’s report revealed a more pronounced slowdown, with growth hampered by reductions in the housing market, industry investment, and government spending. Consumer expenditure increased at a slower annual pace of 1 per cent, as people spent more on healthcare, lodging, and dining out but spent less on goods and groceries.

Harvard professor Jeffrey Frankel previously served on the National Bureau of Economic Research committee, which is tasked with officially declaring a recession.

He stated that he does not believe a recession began at the beginning of the year, citing significant job growth. He was less certain after that.

“Things have already slowed down, so I’m not saying that everything is great,” he said. “Odds of a recession going forward are substantially higher than for a random year.”

In the United States, inflation reached 9.1 percent in June, the greatest rate of price rise in more than four decades.

The US central bank replied to the situation on Wednesday with another unusually hefty increase in its benchmark interest rate, the second 0.75 percentage point increase since it began raising rates in March.

By raising borrowing costs, the Federal Reserve hopes to reduce spending on items such as homes and vehicles, relieving some of the pressures that are pushing up prices. Lower demand, however, implies a drop in economic activity.

According to recent studies, consumer confidence is declining, the housing market is faltering, and business activity is contracting for the first time since 2020.

The US stock market has fallen since the beginning of the year, and corporations ranging from social media behemoth Meta, which owns Facebook and Instagram, to manufacturer General Motors have announced plans to reduce hiring. Other companies, particularly in the real estate sector, have announced job losses.

The 31-year-old stated he was not concerned about facing a long period of unemployment. However, his opinions on the economy are pessimistic, which is consistent with surveys finding that less than 15 per cent of Americans consider economic conditions in the US to be excellent.

“I think everybody is sort of waiting for the pandemic to blow over, for the war in Ukraine to settle down, but that’s not going to resolve any of the inherent systemic flaws,” he says, citing high housing costs, student debt and speculative bubbles in sectors like crypto.

“It seems to be built on stilts and we’re all wondering if this is the thing that sends it plunging.”

Federal Reserve Chairman Jerome Powell stated this week that the US economy is not in recession, but that a slowdown has begun and that more is likely to be required for inflation to return to more normal levels.

The magnitude of the anticipated downturn is still being debated. “The last time we saw inflation this high, in the 1980s, we had a pretty deep recession,” said Laura Veldkamp, finance professor at the Columbia Business School. She said policymakers have learned from that experience, raising hopes for a milder downturn.

(Adapted from

Categories: Economy & Finance, Geopolitics, Strategy, Sustainability, Uncategorized

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