The US economy has contracted for the second consecutive quarter, a development that in many other nations would be regarded as an economic recession. In contrast, the US uses extra information to make that choice. However, the shrinkage, which occurred at an annual pace of 0.9 percent in the three months leading up to July, has received a lot of attention as economic worries intensify. The cost of food, gas, and other necessities is rising at a rate not seen since 1981.
What this means
Fears are growing that a recession is on the horizon, if it hasn’t already, as the US central bank aggressively increases borrowing prices to try to cool the economy and reduce pricing pressures.
US President Joe Biden has attempted to argue that the economy is still healthy in the face of declining public confidence by pointing out that the unemployment rate is still at a low 3.6 percent and hiring has remained steady.
The US economy contracted at an annual rate of 1.6 percent in the first three months of the year. At the time, experts ascribed anomalies in trade data as the cause of the GDP fall. However, the report released on Thursday revealed a more pronounced slowdown, with growth being constrained by falls in the housing market, business investment, and government spending. Consumer expenditure increased at a slower annual pace of 1% as people increased their spending on healthcare, lodging, and dining out while decreasing their spending on products and groceries.
Professor Jeffrey Frankel of Harvard previously served on the committee of the National Bureau of Economic Research, a body of academics tasked with officially announcing a recession. Noting the robust job growth, he asserted that he did not believe a recession began at the beginning of the year. But after that, he lacked as much assurance.
The Federal Reserve hopes to reduce spending on items like homes and vehicles by raising borrowing costs, which should theoretically relieve some of the pressures driving up prices. But a decrease in demand also indicates a drop-in economic activity.
Consumer confidence is declining, the housing market is faltering, and business activity is contracting for the first time since 2020, according to recent statistics. Since the start of the year, the US stock market has decreased, several businesses, including General Motors and social media juggernaut Meta, which owns Facebook and Instagram, have announced they want to slow hiring. Other businesses, particularly in the real estate industry, have declared layoffs.