The US economy contracted by 0.9% in the second quarter of 2022; Figures released on Thursday showed a sharper slowdown, driven by declines in the housing market, business investment and government spending suppressed.

The U.S. economy contracted for the second quarter in a row, reaching a turning point in many countries that could be considered an indicator of economic recession.

The recession is not yet officially a reality in the US and uses additional data to announce the arrival at this level.

However, the contraction of the economy by 0.9% in the second quarter of 2022 attracted great attention all over the world and triggered warnings.

The average price of food, gasoline and other basic necessities in the country is rising at the fastest rate since 1981.

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As the US central bank, the Federal Reserve, raises the benchmark interest rate to try to cool the economy and ease pressure on prices, fears are mounting that a recession is coming – if it hasn’t officially started.

Faced with falling public confidence, US President Joe Biden tried to argue that the economy remained solid, noting that the unemployment rate remained at 3.6% and hiring was high.

This week, he told reporters before the Commerce Department released GDP data that the economy would “not go into a recession.”

The statement encouraged GOP opponents to accuse the White House of trying to redefine the term.

“The White House’s ‘rebranding’ of the recession will not lessen the suffering of Americans,” they said.

In the first three months of the year, the US economy shrank 1.6% annually. Economists at the time attributed the decline in GDP to “quirks” in trade data.

But the new figures, released on Thursday (28/7), showed a sharper slowdown, with growth suppressed by declines in the housing market, business investment and government spending.

As people spent more away from home on health, accommodation and food, but reduced their purchases of goods and food, consumer spending grew at a slower rate of 1% annually.

“After historic economic growth last year and restoring all private sector jobs lost during the pandemic crisis, it’s not surprising the economy is slowing as the Federal Reserve tries to keep inflation down,” Biden said. Said.

“But even as we face historic global challenges, we are on the right track and will emerge stronger and safer from this transition.”

Harvard professor Jeffrey Frankel previously served on the committee of the National Bureau of Economic Research, the group of academics tasked with making the official recession declaration. Noting the strong job growth, he said at the beginning of the year he did not believe the country was going through a recession. However, after this period, his self-confidence decreased.

“Things have already slowed down so I’m not saying everything is great,” he said. “The chances of a recession going forward are much higher than in any other year.”

US inflation reached 9.1% in June, the fastest pace of price increase in more than four decades.

On Wednesday, the US central bank responded to the challenge with an unusually large increase in interest rates, the second 0.75 percentage point increase since it began raising rates in March.

By making borrowing costs more expensive, the Federal Reserve hopes to reduce spending on items like homes and cars by easing some of the pressures that theoretically push prices up. But lower demand also means a decline in economic activity.

Recent reports show that consumer confidence has plummeted, the housing market has slowed, and the country has recorded its first contraction in business activity since 2020.

The US stock market has fallen since the beginning of the year, and companies like Facebook and Instagram giant Meta and automaker General Motors have said they plan to slow hiring. Several other companies, especially in the real estate sector, have announced layoffs.

A fragile economy?

Sasan Kasravi lost his job in June. He worked as a public speaking teacher in California’s San Francisco Bay Area.

The 31-year-old said he was not personally concerned about facing a long period of unemployment. However, his views on the US economy are pessimistic, consistent with surveys showing that less than 15% of Americans describe US economic conditions as good.

“I think everyone is waiting for the pandemic to pass, for the war in Ukraine to calm down, but this will not fix any of the inherent systemic flaws,” he says, citing high housing costs, student debt and speculative bubbles. in sectors. like cryptocurrencies.

“[A economia] He seems to be being held by something fragile, and we all wonder if that’s what caused him to fall.”

Federal Reserve Chairman Jerome Powell said this week that he does not believe the US economy is in recession, but that there is a slowdown and more will be needed to return inflation to normal levels.

How severe the anticipated slowdown will be is still a hotly debated topic.

“The last time we saw inflation this high in the 1980s, we had a pretty deep recession,” said Laura Veldkamp, ​​a professor of finance at Columbia University. She said policymakers learned from this experience and raised hopes for a milder recession.

However, slowdowns in China and Europe, which were most affected by the rising energy prices caused by the war in Ukraine, increase external risks. The US is not alone in raising interest rates, either.

“Many other countries have more serious problems… and the probability of being hit is very high, and it could spill over to us,” Frankel says.

According to the Harvard professor, it is important to consider factors such as the job market to determine the onset of a recession.

He notes that some of the downturns recorded in the past – such as the bursting of the internet bubble in 2001 – would not qualify as recessions under the rule, which only considers such a scenario in the event of a two-quarter contraction. lost jobs.

Production estimates for the US economy are often updated significantly as more data is taken into account. Even in the UK there are reviewed cases of recession.

Frankel added that politics had nothing to do with it, at least historically.

“Every experienced macroeconomist knows that the US recession is not defined by a mechanical rule,” Frankel said. “But given the polarization of politics, there are people who will be cynical and imagine the worst.”