Recession In United States? GDP Declined By 0.9% In Second Quarter

Recession In United States? GDP Declined By 0.9% In Second Quarter

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Hello I am Vikrant Singh, Founder and Managing Director of TypeTheta.com. I am a Lawyer by profession & my goal is to share free knowledge with everyone without any subscription fees and minimum ads. I hope you are enjoying content on TypeTheta.com. Have a Great Day.

The U.S. economy has contracted for two straight quarters, warning of a possible recession as the country grapples with skyrocketing inflation and rising interest rates.

Top economists don’t believe a recession has started, but some predict a gradual recession is likely to begin by early next year.

Residential investment plummeted last quarter, offsetting a slight increase in consumer spending, as the housing market plunged amid steep rises in mortgage rates, while corporate stockpiling and investment also fell.

Gross domestic product, the value of all goods and services produced in the United States, contracted at a seasonally adjusted annual rate of 0.9% over the April-June period, the Department of Commerce said on Thursday. It follows an initial drop of 1.6%. Economists surveyed by Bloomberg had forecast GDP to rise by 0.5%.

Two consecutive quarters of declining output meet the unofficial criteria for a recession, but fall short of those of the National Bureau of Economic Research. Nonprofits define a recession as a significant decline in broad economic activity, including employment, retail sales, and industrial production.

Employers added a solid 372,000 jobs in June and added an average of 457,000 jobs a month so far this year, economists say, making it unlikely a recession is already underway. However, the increase from the record monthly 562,000 in 2021 is slowing.

Last year, the economy grew 5.7%, the most since 1984, as COVID vaccinations increased and businesses reopened more fully from pandemic shutdowns.

“Although economic growth slowed in the first half of 2022, the US economy is not in recession,” said Gus Faucher, chief economist at PNC Financial Services Group.

Still, there is little doubt that the economy has shifted into a lower gear and is entering a perilous period. Inflation hit a 40-year high of 9.1% in June, with the Federal Reserve trying to counter a sharp rise in prices by aggressively raising interest rates in a campaign that could trigger a recession. is.

Goldman Sachs sees a 30% recession chance next year, while Wells Fargo predicts a mild recession in early 2023.

In the second quarter, inflation-adjusted domestic final sales, which removes volatile categories such as inventories and trade, fell 0.3% after rising 2% in the first three months of the year. In other words, consumer and business spending (the engine of the economy) has lost some momentum.

Economists expect growth of 2% this year and 1.1% in 2023, according to a study by Wolters Kluwer Blue Chip Economic Indicators.

The main cause of the contraction in the second quarter was a sharp pullback in corporate stockpiles. Firms slowly added inventories or reduced inventories, cutting growth by more than 2 percentage points.

Companies overstocked inventories last year to tackle longstanding supply chain bottlenecks and product shortages. Many retailers now have too much merchandise and are expected to offer shoppers huge discounts to drop off their merchandise.

Residential construction and renovations, meanwhile, fell 14% following a 0.4% rise in the previous quarter.

The Federal Reserve rate hike pushed up mortgage rates, hurting home sales and construction. Fixed 30-year mortgage rates soared to an average of 5.54% from his 3.22% earlier this year.

Private consumption rises moderately

Americans are retreating as rising gas, food and rent prices force them to limit discretionary purchases, but they are still showing resilience. Private consumption, which accounts for 70% of economic activity, increased 1% adjusted for inflation after rising 1.8% at the end of last year.

Despite budgetary pressures, households continue to be supported by the more than $2 trillion in savings accumulated during the pandemic and strong job growth. And as consumers fear COVID will fade, consumers continue to shift their spending away from goods and toward summer travel and other services.

But the cushions are thin. By comparison, spending surged at a double-digit pace in early 2021 when the economy reopened and federal stimulus curbed purchases.

Decline In Business Investment –

Business investment fell 0.1% after increasing 10% in the previous quarter. Recession fears are driving many businesses into a corner and cutting spending.

Spending on computers, delivery trucks, factory machinery and other equipment fell 2.7%.

Spending on buildings, oil rigs and other structures fell 11.7%, marking the fifth straight quarter of decline. Investment in intellectual property increased by 9.2%, partially offsetting setbacks.

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Trade enhances GDP for change
After being a big drag on growth earlier this year, trade turned significantly positive last quarter.

Exports jumped 18% as U.S. manufacturers benefited from easing supply disruptions.

Meanwhile, imports rose just 3.1% as consumers who splurged on TVs, sofas, appliances and other goods during the pandemic began to pull back.

A surge in exports combined with a fall in imports narrowed the trade deficit, boosting overall growth.

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Hello I am Vikrant Singh, Founder and Managing Director of TypeTheta.com. I am a Lawyer by profession & my goal is to share free knowledge with everyone without any subscription fees and minimum ads. I hope you are enjoying content on TypeTheta.com. Have a Great Day.