US GDP posted its second straight quarter of decline in an alarming growth that economists widely refer to as the definition of an economic slowdown.
The economy shrank 0.9% in the second quarter, despite economists’ expectations of sluggish 0.3% growth, according to Commerce Department data. The GDP report is the biggest indicator of the performance of the US economy.
The downtick followed a first-quarter report in which the US economy posted an astonishing 1.6% decline.
The GDP report was released a day after the Federal Reserve raised its benchmark interest rate by three-quarters of a percentage point for the second consecutive month, from 9.1% in June, to pacify inflation.
The Fed’s sharp rate hikes have raised investor concerns about its ability to engineer a “soft landing” by controlling inflation without an economic slowdown. Meanwhile, businesses and consumers alike are facing the twin effects of inflation that has eroded their purchasing power and higher interest rates, making it more expensive to borrow money.
The fall in GDP came after assurances from top economic policymakers that the underlying economy is strong. Fed Chairman Jerome Powell indicated on Wednesday that he does not see the US economy in recession at the moment.
“I don’t think America is going through a recession right now, and that’s because there are a lot of sectors of the economy that are doing very well,” Powell told a news conference.
Treasury Secretary Janet Yellen has also dismissed the notion that a recession is already underway.
Yellen said, “You don’t see any signs now.” “The recession is a broad-based contraction that affects many sectors of the economy. We just don’t have that.”
Yellen said she would be “surprised” if the National Bureau of Economic Research announces a recession in the near future.
“I would be surprised if NBER will declare this period as bearish, even if it is two quarters of negative growth,” she said. “We have a very strong labor market. When you’re creating about 400,000 jobs a month, it’s not a recession.”
The National Bureau of Economic Research is viewed as an authority on recessions and defines them as “a significant decline in economic activity that extends across the economy and lasts for more than a few months.” While two straight quarters of decline in GDP is seen informally as a sign of recession, the NBER does not specify a specific time frame for its definition.
Meanwhile, the White House attempted damage control before the report was released. The Biden administration issued a blog post arguing that a recession was “unlikely” even if GDP declined for the second straight quarter.
