Decline in US GDP in Q2 sparks recession debate

Joe Biden during a speech on his country's economy on July 28 in Washington.

US activity declined at a 0.9% annual rate in the second quarter compared to the first quarter. This negative performance follows a 1.6% drop in activity in the first quarter.

Normally, everyone in the US talks about a recession when gross domestic product (GDP) falls for two consecutive quarters. Except that the affair is a major political issue for Joe Biden, who has focused his political message on post-Covid growth and faces very sensitive midterm elections in November. Ahead of the growth numbers release on Thursday, July 28, the Democratic President fired back fire, declaring that the country is not in recession. He was due for the help of Fed Chair Jerome Powell, who on Wednesday also felt the country was not, particularly given the excellent performance of the job market.

As a result, all of America is debating the definition of a recession. This state of the economy is officially proclaimed retroactively, by a panel of eight economists from the National Bureau of Economic Research. It is defined as a significant drop in activity spanning several months across the economy. The panel takes into account factors such as employment, production, retail sales and household income.

Also read: Article reserved for our subscribers In the United States, GDP fell by 1.4% in the first quarter

In more detail, the figures for the second quarter are less negative than the first but offer a less encouraging picture as they reveal a deterioration in the two pillars of the US economy, consumption and investment. In the first quarter, the drop in activity was caused by the sharp deterioration in foreign trade, which recovered. On the other hand, companies ran down inventories this quarter, clearly unsuitable for consumers, which hurt growth. Investments are particularly affected, especially for residential real estate (–14%) and companies (–3.9%), while consumption is only based on one pillar, that of services. Americans dine out and travel, which increases service consumption by 4.1% (vs. 3.1% in Q1). On the other hand, they are abandoning goods that have been massively bought during the Covid (down 4.4% vs. a 0.3% increase in the first quarter). As a result, consumption fell from 1.8% to 1%, while government spending continued to fall, especially at the federal level excluding defense (-10.5%).

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Kaddouri Ismail

I am Ismail from Morocco, I work as a blogger and online marketer. I am also the founder of the “Mofid” site, in which I constantly publish many important articles in the field of technology, taking advantage of more than 5 years of experience working in the field. I focus on publishing in a group of areas, the most important of which are programming, e-marketing, digital currencies and freelance work.

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