The United States has unofficially slipped into recession after its economy shrank for a second straight quarter.
Gross domestic product declined at an annual rate of 0.9% in the second quarter, after a larger decline in the first three months of the year, according to the Commerce Department.
Two quarters of negative growth is commonly seen as a strong signal that a recession is brewing, although Biden and the White House have insisted the economy is not in recession.
Technically, the National Bureau of Economic Research has to officially declare a recession.
A collapse of the world’s largest economy would have global consequences as well as domestic political costs.
Although Biden says he is confident the US economy is not in a slump, his critics are sure to seize on the report as evidence of the veteran Democrat’s mismanagement of the economy.
“It’s no surprise that the economy is slowing as the Federal Reserve acts to reduce inflation,” Biden said after the growth data was released, in a statement that emphasized that “the market labor market remains historically strong.”
“Although we face historic global challenges, we are on the right track and will come through this transition stronger and more confident,” he said.
After a 1.6 percent drop in the first three months of the year, the report pointed to falls in public spending across the board and private investment in goods, including automobiles, and in residential buildings fell in the second quarter, despite an increase in exports. .
The US economy also continues to struggle with sky-high inflation, a result of supply chain bottlenecks due to the Covid lockdowns, as well as Russia’s war in Ukraine which has sent food prices and increase fuel
Meanwhile, a key measure of inflation, the personal consumption expenditure price index, rose 7.1 percent in the past three months, the same pace as in the first quarter, the data showed.
With the labor market showing some signs of cooling and the Federal Reserve’s outsized interest rate hikes slowing the economy late Wednesday, many economists say the recession discussion is more a matter of when , not of course.
And that spells a major political headache for the president, who has seen his approval ratings plummet in recent months as American families struggle to make ends meet due to increased of inflation.
In recent days, Biden has led his administration in a chorus of denial. “We’re not going to be in recession, in my view,” he insisted Monday, stressing the strength of the labor market.
It would be highly unusual for an economy that is still adding jobs at a rapid rate, and with near-record unemployment, to fall into recession.
Fed Chairman Jerome Powell agreed, saying that even with interest rate hikes underway to slow the economy, it is possible to cool price pressures without triggering a downturn or big jump in unemployment, although he acknowledged that the path to threading that needle is narrowing.
The central bank announced another big interest rate hike of 75 basis points on Wednesday, the fourth increase this year, stressing that it would not hesitate to opt for “another unusually large increase” if necessary.
Powell said the primary goal was to get sky-high inflation back down to two percent, but the Fed wants to strike a balance.
“We’re trying to do the right amount. We’re not trying to have a recession and we don’t think we have to,” he told reporters.