U.S. GDP contracted 0.9% in the last three months according to the Bureau of Economic Analysis, marking the second consecutive quarter of negative economic growth.
This occurrence was historically seen as a sign of recession but White House Press Secretary Karine Jean-Pierre grabbed attention earlier this month after saying that “two consecutive quarters of negative GDP growth” is “not the definition of a recession.”
U.S. GDP Contracted 0.9% in Q2
The fall in the annual rate in Q2 follows the 1.6% decrease in the first quarter. Two consecutive GDP declines were historically seen as a common definition of a recession.
However, despite the evident slowdown in the U.S. economy amid 40-year high inflation and aggressive interest rates, the White House has been opposing claims that the U.S. is heading into a recession in recent weeks. Following the Federal Reserve’s latest 75 basis points hike announced Thursday, White House Press Secretary Karine Jean-Pierre said the U.S. economy is not a recession or in a “pre-recession” at the moment.
The White House even published a blog post last week to back its claims that two consecutive quarters of economic contraction do not define a recession. In the blog post, the administration attempted to explain that apart from GDP, other data related to the labor market, corporate and personal spending, incomes, and others, are all important factors that go into the determination of a recession.
“Recession probabilities are never zero, but trends in the data through the first half of this year used to determine a recession are not indicating a downturn.”
it wrote.
While the U.S. and the global economy continue to face headwinds, “there is a good chance that the strength of the labor market and of consumer balance sheets help the economy transition from the rapid growth of the last year to steadier and more stable growth.” Recession fears have also significantly affected the stock market this year, with fund managers reducing their stock holdings to the lowest level since 2008.
What Can We Expect Going Forward?
Following the Fed’s another hawkish rate hike yesterday, top Wall Street economists weighed in on the matter and the economy’s prospects. Even though Fed Chair Jerome Powell said another 75 bps hike remains on the table for September, Goldman Sachs analyst Jan Hatzius believes the Federal Open Market Committee (FOMC) will slow the pace from now on.
The analyst said he expects a 50 bps hike in September, followed by two 25 bps hikes in November and December. UBS analyst Jonathan Pingle shared a similar view, saying he also expects the 50bps interest rate increase in September.
As for the debate whether the U.S. economy is now in a recession or not, the National Bureau of Economic Research (NBER) is the official agency that makes that decision. However, it is unlikely that the bureau will make an official decision any time soon, given that its Business Cycle Dating Committee usually analyzes various statistics before making the call.