US Economy Shrinks Again: Recession or Not? – By Michael Rainey (The Fiscal Times) / July 28, 2022
Gross domestic product fell at an annual rate of 0.9% in the second quarter, the Bureau of Economic Analysis announced Thursday in its preliminary analysis of the April-June period, sparking fresh worries that the economy may be tipping into a recession.
The second-quarter contraction was driven by a slowdown in consumer consumption, a drop in business inventories and a substantial decline in gross private investment. Government spending fell, as well, at both the federal and state and local levels.
Inflation played a major role, as well. In addition to battering consumers and businesses alike, inflation consumed all of the nominal growth during the quarter as prices grew faster than consumption. Without adjusting for inflation, in purely nominal terms, GDP grew at a 7.8% annual rate, the BEA said.
Recession or not? The economy has now contracted for two quarters in a row, satisfying an informal – though by no means definitive – rule of thumb that defines a recession as two quarters of negative growth. As countless economists and journalists have reminded us, though, the group that formally declares when a recession occurs, the nonprofit National Bureau of Economic Research, considers a variety of factors when determining the incidence of a recession, with quarterly growth one key factor among several others. For example, the experts also look closely at the labor market, which continues to be quite strong and is not pointing toward recessionary conditions.
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