U.S. economy just had a 2nd quarter of negative growth. Is it in a recession?


During the last three months, the US economy contracted by 0.9 percent.

The economy has shrunk for the second straight quarter. GDP, or gross domestic product, fell by 1.6 percent year on year in the first quarter.

Although two consecutive quarters of negative growth are often regarded as a recession, there is no formal definition of the term. The National Bureau of Economic Research, a nonprofit, unbiased agency, decides whether the American economy is experiencing a recession. That decision is made by an NBER committee of eight economists, and it is based on a variety of variables. 

The White House has opposed designating the present state of the economy as a recession. It is aware of the impact the economy will have on the midterm elections, without a doubt. As evidence of the economy’s health, President Biden touted record employment growth and foreign corporate investment. To me, it doesn’t sound like a recession, Biden said.

Can there really be a recession when so many jobs are being created? 

In a recent interview on NBC’s Meet the Press, Treasury Secretary Janet Yellen said that while two consecutive quarters of negative growth are often regarded as a recession, the current economic situation is distinct.

She said, “When you’re adding over 400,000 jobs every month, that is hardly a recession.”

However you look at it, the economy has shrunk.

According to the GDP data, firms have made layoffs. Without a doubt, as interest rates have risen thanks to the Federal Reserve, borrowing has grown more costly. Therefore, there is less money available for investment. The main concern is whether or not that will begin to harm employment growth.

Retailers were spending less because they had a surplus of inventory to get rid of. And with mortgage rates increasing, the property market, which had been heating up throughout the epidemic, is beginning to cool.

There were some positive aspects, however. People were indulging themselves by going to restaurants and vacationing as wages continued to grow. Total income increased.

However, as the Fed continues to aggressively raise interest rates to combat excessive inflation, recession worries have significantly increased.

In addition, the economic data has been inconsistent.

Prior downturns, for instance, were preceded by job losses in the economy. But as Yellen pointed out, the American economy has been creating new jobs every month.

According to Yellen, the economy is not in a recession. “A recession is a period of generalized economic downturn.” Right now, we can’t see that. ” Yellen also mentioned how consumer spending has continued to be robust, and she emphasized encouraging information on American credit quality.

What signs of a recession are there?

According to the NBER, a recession is “traditionally defined” as “a large fall in economic activity that is dispersed throughout the economy and that lasts longer than a few months.”

The labor market has continued to exhibit signals of growth, and employment is taken into consideration by the group. The economy added 372,000 jobs in June, keeping the unemployment rate at 3.6 percent, close to pre-pandemic levels.

Michael Gapen, the head of U.S. economics at Bank of America Securities, asserts that the NBER would not analyze the statistics at this time and declare that the economy is in a recession.

However, it’s uncertain how much it will matter to Americans whether or not the current economy conforms to a precise, very technical definition.

The economy is already slowing in certain areas.

Everyone can agree that the economy is faltering, prices are growing faster than they have in years, and the housing market has begun to cool as a result of the Fed’s aggressive interest rate hikes. The central bank increased interest rates by an extra three-quarters of a percentage point on Thursday.

 The headline figure on Thursday, which will show how much the economy expanded or shrank on a percentage basis, is expected to draw the most attention, but economists stress the importance of examining the underlying statistics.

However, as noted by Fed Chair Jerome Powell and other officials, attitudes and expectations are important at a time like now, when there is so much uncertainty and so many Americans are suffering economically. The goal for the economy is also to avoid losing too many jobs.

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