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U.S. Economy had Negative Growth in Second Quarter. Recession?

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U.S. Economy had Negative Growth in Second Quarter. Recession?

There was a 0.9% decline in the U.S. economy over the last three months.

The economy has contracted for the second consecutive quarter. A 1.6% decline in GDP was recorded in the first quarter.

The term recession is often used to describe two consecutive quarters of negative growth, but it’s not an official term. U.S. recessions are determined by the National Bureau of Economic Research, a nonprofit, nonpartisan organization. This determination is made by an NBER committee of eight economists, taking into account many factors.

A recession has been ruled out by the White House. As the midterm elections approach, it is no doubt aware of the role the U.S. Economy will play.

A record number of jobs have been created and foreign investment has been attracted to the country, according to President Biden. Biden concluded, “That doesn’t sound like a recession.”.

If so many jobs are being created, can it be a recession?

While two consecutive quarters of negative growth are generally considered a recession, conditions in the U.S. Economy are unique, according to Treasury Secretary Janet Yellen.

In her view, almost 400,000 jobs are created every month, which does not qualify as a recession.

Even so, the economy has weakened regardless of how you slice it.

Businesses retrenched, according to the GDP report. With the Federal Reserve raising interest rates, borrowing has become more expensive. Therefore, less money is available for investment. That could negatively affect job growth, which is the main concern.

As retailers worked through their inventory gluts, they spent less as well. In addition, mortgage rates are rising, which is cooling housing, which has been hot during the pandemic.

It was not all gloom and doom, however. In addition to increasing wages, people were also treating themselves by going out to eat and traveling. There was an increase in income overall.

Due to the Fed’s aggressive hikes in interest rates to combat high inflation, fear of recession has grown considerably.

It has also been a mixed bag when it comes to economic data.

The U.S. Economy was losing jobs in advance of previous downturns, for instance. In spite of this, the U.S. economy continues to add jobs month after month, as Yellen pointed out.

According to Yellen, there is no recession in the U.S. Economy. In a recession, the U.S. Economy is weak across the board. At the moment, we are not experiencing that.”

Recession is not liked by the White House

A recession isn’t automatically triggered by two quarters of negative growth, according to the White House.

The White House is acutely aware of the optics of Americans struggling financially as the midterm elections approach. Americans are already feeling the effects of skyrocketing costs and inflation running at multi-decade highs.

Morning Consult/Politico polls found that 65% of registered voters think we are already in one.

When is a recession likely to occur?

According to the NBER, a recession is defined as “a significant decline in economic activity lasting more than a few months that affects the entire economy.”

Group members take employment into account, and the labor market continues to strengthen. According to the Bureau of Labor Statistics, the unemployment rate held steady at 3.6% in June, which is near its pre-pandemic low. The economy added 372,000 jobs during the month.

According to Bank of America Securities’ chief U.S. economist Michael Gapen, the NBER would not see the data as indicating a recession right now.

The current U.S. Economy may not meet a specific, highly technical definition, but Americans may not care about that.

The U.S. Economy is already slowing in some parts

In spite of the Fed raising interest rates aggressively, the economy seems to be slowing, prices are rising at their fastest pace in decades, and the housing market has begun to cool. An additional 3 3/4 percentage point increase was announced on Thursday by the central bank.

While economists agree that the headline number on Thursday – how much the economy grew or shrank – is likely to attract the most attention, they also emphasize the importance of digging deeper.

Mastercard Economics Institute chief economist Michelle Meyer says it’s the pieces of the GDP puzzle that matter.

As part of the analysis, we will determine whether household spending, which makes up 70% of all economic activity, kept pace with inflation.

At a time like this, when there is so much uncertainty, and when so many Americans are suffering economic difficulties, sentiment and expectations matter, and the key is not to lose too many jobs.

“I think a lot of it comes down to jobs,” says Meyer. “Whether you have a job. Whether you expect to keep your job. And what that might mean for your future path of income.”

 

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