The US economy has contracted again in the last three months, unofficially signaling the start of a recession.
The Commerce Department announced Thursday that gross domestic product (GDP), a broad measure of the price of goods and services, declined at an annual rate of 0.9% in the second quarter after falling at an annual rate of 1. 6% in the first three months. .
The bad news will be a huge blow to the Biden administration as it gears up for a tough midterm election season. White House officials have tried to quash talk of a recession, arguing that many parts of the economy remain strong.
The growth rate is in stark contrast to the solid 6.9% annual GDP increase recorded in the last quarter of 2021, when the economy recovered from the Covid lockdowns.
Two quarters of negative GDP growth is considered a sign that the economy has entered a recession. But the National Bureau of Economic Research (NBER) is the official arbiter of when recessions start and end. While the GDP figures will weigh in on the NBER’s final verdict, it also looks at a broader range of economic factors, including the labor market, and is unlikely to make a decision any time soon.
In the meantime, pressure remains on the Biden administration. Consumer Confidence Surveys are falling as recession fears and overall and economic approval of Joe Biden grow survey numbers they are currently at the lowest levels of their presidency.
The latest GDP figures came a day after the Federal Reserve announced another tthree-quarters of a percentage point raising its benchmark interest rates in its fight to control inflation.
Prices rose to annual rate of 9.1% in the year to June, driven by high fuel, food and housing costs.
While parts of the US economy remain strong, most notably the labor market, the Covid pandemic continues to wreak havoc on global supplies and the war in Ukraine has pushed up energy prices.
The confused economic outlook has sparked selloffs in stock markets around the world and prompted some economists to predict a recession is looming. Nearly 70% of leading academic economists surveyed by the Financial Times last month he forecast that the US economy will tip into recession next year.
Fed Chairman Jerome Powell said on Wednesday that he did not believe the United States was currently in a recession. But he said the Fed was prepared to keep raising rates in order to drive prices back down and it was inevitable that such a move would slow the economy and hurt the labor market. “Price stability is what makes the whole economy work,” Powell said.
