U.S. GDP Fell at 0.9% Annual Rate in Second Quarter - WSJ
S E E D E D C O N T E N T
The U.S. economy shrank for a second quarter in a row—a common definition of recession—as businesses trimmed their inventories, the housing market buckled under rising interest rates, and high inflation took steam out of consumer spending.
Gross domestic product, a broad measure of the goods and services produced across the economy, fell at an inflation and seasonally adjusted annual rate of 0.9% in the second quarter, the Commerce Department said Thursday. That marked a deterioration from the 1.6% rate of contraction recorded in the first three months of 2022.
The report indicated the economy met a commonly used definition of recession—two straight quarters of declining economic output.
The official arbiter of recessions in the U.S. is the National Bureau of Economic Research, which defines one as a significant decline in economic activity, spread across the economy for more than a few months. Its Business Cycle Dating Committee considers factors including employment, output, retail sales, and household income—and it usually doesn’t make a recession determination until long after the fact.
The GDP report offered some discouraging signs, and underscored the challenges facing U.S. businesses, consumers and policy makers—including high inflation, weakening consumer sentiment and supply-chain volatility.
Consumer spending accounts for roughly two-thirds of total economic output, and Thursday’s report showed Americans spent at a cooler clip in the second quarter. Business investment worsened slightly. The housing sector slowed as borrowing costs rose.
Two volatile categories buffeted the headline figure: Private nonfarm inventories subtracted 1.96 percentage point from the second quarter’s GDP figure. Trade also played a large role in the second quarter. Net exports–the difference between exports and imports–added 1.43 percentage point.
Inflation hit a fresh four-decade high during the second quarter, hammering consumer sentiment and eroding Americans’ purchasing power. The Federal Reserve responded by aggressively raising interest rates , which in turn cooled the housing market , reducing brokers’ commissions and denting residential investment.
The U.S. economic recovery is following an unusual trajectory, with weakening output but strong job gains . The unemployment rate, a key barometer of economic health, held steady at a low 3.6% for the past four months, and employers continued to hire at a strong pace. Most economists in a Wall Street Journal survey expect the economy to grow in the third quarter and in 2022 as a whole, though lately they have been dropping their estimates.
“We’re in a sentiment recession. I don’t think we’re in an actual recession. The growth slowdown has been driven by inflation and price shocks—as they fade in the near term, that should allow growth to accelerate,” said Aneta Markowska, chief financial economist at Jefferies. She expects the economy to expand 1.7% this year, measured from the fourth quarter of last year.
Economists say idiosyncratic factors weighed on the U.S. economy in the first half of the year, like the inventory buildup and swings in exports and imports . A shift in spending away from goods back toward services, and rising prices cutting into people’s buying power, left many companies with stockpiles of products they are now discounting to unload.
Walmart Inc. said on Monday that it was having to cut prices to reduce merchandise levels at its flagship chain and Sam’s Club warehouse chain. Many manufacturers are also still struggling with pandemic-related supply-chain disruptions .
Business is “a little unhealthy right now” at Best Tool & Engineering Co., according to its president, Joseph Cherluck. The company, based in Clinton Township, Mich., makes tools and plastic components like welding fixtures for vehicle dashboards, and the nationwide shortage of computer chips means auto makers are pushing back orders .
“Autos are waiting for chips and we’re seeing it down the supply chain,” said Mr. Cherluck, adding that he is concerned about the economy slowing. The 15-employee company has frozen equipment purchases and scaled back hiring plans as a result. “I feel uncertain about the rest of the year,” Mr. Cherluck said.
The Fed raised interest rates on Wednesday and indicated more increases were likely coming to combat inflation. The central bank this year has lifted its benchmark rate by a cumulative 2.25 percentage points, to rein in high inflation, which has hurt consumer confidence and outpaced growth in workers’ wages.
Household spending, the linchpin of the U.S. economy, held up in the second quarter. Consumers continued to travel and shop as more people gained jobs and as their savings—boosted by federal stimulus efforts—remained above prepandemic levels.
Consumers face a mixed outlook for the rest of the year, bedeviled by high inflation but supported by a strong labor market. Analysts say that a decline in gasoline prices from their mid-June high should put extra dollars in people’s pockets in the current third quarter.
Americans also have relatively healthy balance sheets. After the pandemic hit the U.S. economy in early 2020 and prompted a short but sharp recession, increased household saving, government stimulus checks and enhanced unemployment benefits boosted household finances . The resulting “excess savings”—the amount above what they would have had there been no pandemic—remain elevated. According to Moody’s Analytics, excess savings totaled $2.5 trillion in May. That propelled consumer spending and helped the economy last year post its best growth since 1984.
Some consumers are hunkering down now. Aimie Gresham of Essex, Conn., has pulled back on discretionary spending—like dining out and expensive salon visits—to pay the higher prices for basics like oil, electricity and groceries she has faced in recent months.
“Even my cat’s food has gone up” by about $10 a bag over the past year, said Ms. Gresham, who works at a retirement financial firm. Her husband’s car has 250,000 miles on it, but the couple decided not to replace it because of the current high prices. “In any other market we would be buying a new car right now,” said the 54-year-old.
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It is now official. We are in a recession.
All of it caused directly by the radical far left policies of Joe Biden.
With us at full employment, wages rising and burgeoning consumer demand this is bound to be the shortest least painful recession in history, thanks to the competent leadership we enjoy now...
Transitory even?
Even better, we just heard that it will be: the shortest least painful recession in history
They love to spin!
The White House claims the definition of recession isn't back-to-back quarters of negative GDP growth but then won't give their own definition.
No doubt…
They don't know yet. They think everyone thinks like them.
Of course... could you expect anything else from a politician. The administration has been spinning for a few days now telling us that the "yardstick" definition is not the official definition and that won't come out for about another year yet. So rest easy and keep spending that money as the government is here to help us and keep us safe and our valiant and hard-hitting news agencies are out there doing their best to keep government honest. (damn, can't believe I said all that with a straight face).
I think I recognize that cover.
Where have I seen it?
You mean the leftist dictatorship.
We'll talk on election night.
at full employment,
There are less people employed then in Feb 2020, before Covid.
wages rising a
Lol. not as quick as inflation, meaning people make less in real terms. That's not good. You get that, right?
"Democrats have already crushed American families with historic inflation. Now they want to pile on giant tax hikes that will hammer workers and kill many thousands of American jobs. First they killed your family's budget. Now they want to kill your job too." ...Mitch McConnell
It appears that they haven't caused enough damage. They just bamboozled Manchin into more massive spending.
We all know spending your way out of a recession works so well. Just ask Obama.
Joe wants to outdo Obama.
He already has. Joe is the worst, least popular president in history.
Nope, that would be #45
He's been elevated from the gutter.
President Carter was never in the gutter.
That's where the republicans reside.
No? Take a look at him.
"No? Take a look at him"
Whatever the fuck that's supposed to mean. And whatever the quote is from that bit of video has no context whatsoever.
Funny those talking about ethics and standards who have none.
Frank Lopez said that he "got high on his own supply!"
Yes, the United States is in recession. But the real economy isn't seeing it.
Biden dumped several boatloads of cash into the economy in 2021, amounting to almost 10 pct of GDP. How could that not have artificially inflated the GDP? How could that hugely huge amount of free money not cause inflation?
There hasn't been much appetite for gold or treasuries. Retailers have been caught flat footed by the whiplash shift in consumption. Investors are stuck with bad bets on real estate. The cost of free money has gone through the roof so Biden can't afford another boatload of government cash. Meanwhile consumers are paying a lot more for less.
The Fed is trying to shrink the money supply while political government is trying to find some way to increase the money supply. The financial sector doesn't appear to be experiencing irrational exuberance; which suggests the financial wizards are fearing a haircut. The five & dime crystal ball predicts the recession will be contained to the financial sector. We're seeing the rats run for the hawse holes in a scramble to find free money and unearned profits.
What should we expect? A tighter squeeze on the productive economy since that has become more competitive with finance. Increasing demands for giving retirement savings and investments to financial gamblers. Inflation driven as a hedge against financial bad bets. Before this is over we may need another TARP. Don't be surprised if there are louder cries for autocrats to 'do something' come election time.
Is there another definition that anyone uses? Have we ever had two quarters in a row of negative GDP and not called it a recession? Asking for a friend. And please no one start trying to lecture me about the NBER. I know all about them and what they do.
I did a tiny bit of research and found that since WWII, every single such report of negative GDP over two quarters has been called a recession.
Shit like this wrecks trust. Stop trying to change the definitions of things that have been well-defined for generations. When politicians - or anyone really - does this, it’s a clear sign that they’re full of shit.
Instead, just acknowledge what everyone knows. We’re in a recession. Then, after that bit of honesty (which is about as much of a stretch as the kid with chocolate all over his face admitting he ate the brownies), you can go on to make an argument that diminishes the importance of the recession.
There are legitimate arguments to be made that this recession is not reflective of the economy in general or of government policy, but rather an unavoidable effect of Covid or the war in Ukraine, or both.
You can also argue that the decline in GDP is not so bad. You can argue that as long as employment is at its current level, this drop in GDP is irrelevant. You can also look to things like housing prices or consumer spending as indicative of a thriving, if somewhat unstable, economy.
I’m not saying all those things are true in this case, but at least you could make the argument. Trying to claim that 2 consecutive quarters of negative GDP is “not a recession,” and that it’s absurd to even suggest it, without more, (when it always has been a recession) is pure gaslighting. It’s made worse by the fact that the Biden administration has spent the last year and a half telling us inflation is temporary or that it’s not so bad. It’s also made worse by the administration spinning every excuse imaginable for the highest gas prices we’ve ever seen.