The U.S. economy contracted for two consecutive quarters this year, according to a revised government report, which technically meets the criteria for a recession.
The third and final update was released on Sept. 29 by the Bureau of Economic Analysis, as rising inflation and higher interest rates weighed on consumer spending.
U.S. gross domestic product (GDP), which measures the production of goods and services, fell by 0.6 percent on an annualized basis in the second quarter, unchanged from the last reading.
In the first quarter, real GDP had already decreased 1.6 percent in the first months of the year.
The first half of 2022 witnessed the worst downturn since the pandemic two years ago, which pushed the economy into a short-lived, but painful recession.
Meanwhile, gross domestic income GDI) slowed down, to 0.1 percent, in the second quarter, from the previously reported 1.4 percent pace, as estimates for corporate profits, wages, and proprietors’ income were revised lower.
GDI, which is an alternative measure of economic growth, takes into account activity from incomes earned and the costs incurred during production.
GDI and GDP, which normally parallel each other, have diverged lately.
Total GDI revised estimates were lowered by $47.4 billion, to $305.7 billion, according to this report.
A recession traditionally is defined by economists as two consecutive quarters of negative economic growth.
It is characterized by rising unemployment, low or negative GDP growth, along with a fall in wages and retail sales, according to the National Bureau of Economic Research (NBER).
Awaiting the Official Sign of Recession
The NBER, which is the unofficial arbiter of economic growth in the United States, normally takes a year to review all of the data before officially announcing a recession.The research group, when making an assessment, tends to rely more upon unemployment and consumer-spending data, which continued to grow in the first half of the year, than it does on GDP. The group also takes into consideration the total volume of decline in economic activity.
The NBER said it is reviewing a number of factors over the two quarters, including declines in private business inventories, residential and nonresidential investment, and total government spending at all levels.
In addition to rising inflation and borrowing costs, a glut in retail inventories is putting a dent in private sector growth, as businesses have been sitting on a larger stockpile of goods than previously estimated.
Fed Moves to Slow the Economy
Investors are increasingly worried that the Federal Reserve’s aggressive interest-rate policy will trigger a depression by hiking rates to their fastest pace in decades in order to crush high inflation.The Fed wants reduce the labor market in order to bring inflation down to its 2 percent target, but the rate hikes are dramatically raising the risk of an economic downturn.
There were 11.2 million job openings at the end of July, with two jobs for every unemployed person, which the central bank says is too high.
The Fed policy rate now sits at the current range of 3.00–3.25 percent, and likely will continue to boost it well above 4 percent.
Fed Chairman Jerome Powell finally admitted that the American economy would not face a soft landing, since raising interest rates to fight inflation will not come without suppressing growth.“The chances of a soft landing are likely to diminish to the extent that policy needs to be more restrictive or restrictive for longer,” said Powell. He said that many people and businesses will start to feel economic “pain.”
“The annual revisions to GDP and gross domestic income indicate a weaker U.S. economy in the first half of 2022 than initially reported,” wrote Gus Faucher, chief economist for The PNC Financial Services Group, in a note on Sept. 29.
The first estimate for third-quarter U.S. GDP is expected to be released on Oct. 27.
