U.S economy enters in recession, GDP falls by 0.9% in the second quarter

The US economy has shrunk over the past few months, informally Signaling the start of a recession phase.

The Commerce Department on Thursday reported that GDP a broad measure of the prices of goods and services – fell at an annual rate of 0.9% in the second quarter. After falling at an annualized rate of 1.6% in the first quarter.

This bad news will hit the Biden administration as it prepares for a tough midterm election season. White House officials tried to refrain from talking about the recession, arguing that many parts of the economy remain strong.

The growth rate stands in contrast to the solid 6.9% annualized GDP growth seen in the final quarter of 2021, as the economy recovered from the Covid period.

The rapid growth has contributed to soaring inflation – now reaching a 40-year high – and the Federal Reserve’s decision to raise interest rates in an attempt to bring down prices.

The changing economic environment is already reflected in the GDP report. Consumer spending – the main driver of the economy – slowed in the quarter but remained positive, up 1% year on year. Fixed investment in residential areas, or construction of houses, fell 14% year on year and slowing business inventories and unsold goods produced by businesses led to a drop in GDP.

Negative growth in GDP is seen by many as a signal that the economy has entered a recession. But the National Bureau of Economic Research (NBER) is the official arbiter of when a recession begins and ends. While the GDP figures will play a significant role in the NBER’s final verdict, it is also looking at a range of economic factors, including the job market, and is unlikely to make its decision anytime soon.