According to the Bureau of Economic Analysis, the US economy contracted once more in the second quarter.
An extensive gauge of economic activity known as gross domestic product showed a 0.9 per cent annual decline from April through June.
That decline signifies a significant symbolic milestone for the most widely accepted, albeit unofficial, definition of a recession as two consecutive quarters of negative economic growth.
The eagerly awaited data release has assumed disproportionate importance as investors, decision-makers, and regular Americans look for some measure of clarity in the current uncertain economic environment.
The second-quarter GDP activity’s negative dip, which was revealed in Thursday’s preliminary reading but will be revised twice more, was primarily caused by a drop in inventory levels.
Businesses have been trying to replenish the stockpiles that were depleted during the pandemic in recent quarters, but in doing so, they have discovered that they are overstocked at a time when consumers are reducing some of their purchases.
Thus, inventory investments made during the second quarter were less than those made during the first quarter.
The [Federal Reserve] wants the economy to slow down, according to Ryan Sweet, who oversees real-time economics at Moody’s Analytics. “There is no recession here.”
The White House has been adamant that the world’s largest economy, despite being buffeted by decades-high inflation and a cascade of supply shocks, remains fundamentally sound, even though Thursday’s preliminary estimate marked a sharp decline from the 6.7 per cent expansion the economy underwent in the second quarter of 2021.
Two consecutive quarters of economic contraction do not, in and of themselves, constitute a recession, according to the administration, which even went as far as to publish an explanation of sorts.
In a blog post published last week, the White House stated that in addition to GDP, data on the labour market, business and individual spending, production, and incomes are all taken into account when determining whether or not a recession is officially declared.
Official recession judges include the nonprofit National Bureau of Economic Research, which is not likely to issue a decision anytime soon.
The organization’s Business Cycle Dating Committee typically considers a wide range of statistics over several months before making a decision.
It’s a widespread and ongoing weakness in the economy, according to their much stricter definition, Sweet said. “And this isn’t widely supported. Inventory and trade are where it’s concentrated the most; trade was a major drag on first-quarter GDP.”
The labour market is also doing well, he added. Through the first half of this year, the Bureau of Labor Statistics reports that monthly job gains have averaged over 450,000. The recent weeks have also seen an increase in jobless claims, even though those gains are moderating as expected.
The most recent weekly unemployment claims data from the BLS showed on Thursday that the estimated number of first-time claims for unemployment benefits for the week ending July 23 was 256,000.
This week’s total is 5,000 lower than the previous week’s total, which was increased by 10,000 claims to 261,000.
Jobless claims have unquestionably increased since their cyclical lows, according to Sweet. “I believe that more accurately reflects an economy that is shifting into a lower gear.”
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The data can and probably will change, according to economists, which is the main reason it would be premature to declare a recession based on Thursday’s numbers.
For example, subsequent revisions to first-quarter GDP figures changed the initial decline from 1.4 to 1.6 per cent, and Thursday’s figures are only the first of three estimates.
Adjustments are more common than unusual because the Commerce Department continuously improves its calculations as new data becomes available.
The Federal Reserve Bank of San Francisco estimates that, in the absence of precise data, about a third of initial GDP releases are based on statistical extrapolations and assumptions.
“Typically, these are snapshots or isolated moments in time. It’s similar to comparing a balance sheet to an income statement for a quarter “According to Eric Freedman, head of investments at US Bank Wealth Management.
