US GDP drops 0.9% in Q2 and financial system enters technical recession

US GDP fell 0.2% in the second quarter from the prior period and 0.9% at an annualized rate

The gross domestic product (GDP) of United States fell 0.2% in the second quarter, between April and June, compared to the previous quarter, according to released by the US Department of Commerce this Thursday, 28.

GDP had a negative variation for the second consecutive quarter, configuring technical recession according to the definition.

In the first quarter, US GDP had fallen by 1.6% at an annualized rate.

The drop in the quarter came mainly amid the reduction in Private business inventories (down more than 2%) it is us investments in fixed capital, such as the purchase of machinery and real estate (down 0.7%).

In many retailers, inventories had grown abnormally fast in 2021 as they reopened after the height of Covid-19, which led to a slowing effect this year – in addition to the other challenges of the economy, with the war in Ukraine and inflation.

Another risk reflected in GDP data is supply chain shocks, which have posed challenges to production in sectors such as automobiles and industry in general, important fronts for the US economy.

After trillion dollar packages and aid during the pandemic, Federal government spending also dropped 0.2% and from states and local governments, 0.13%.

Already private consumption, which represents two-thirds of GDP, grew by 1% (compared to the previous quarter), a result lower than the 1.8% of the first quarter, but still up. Exports were also a positive front, up 1.9%.

Is the US in a Recession?

Despite this description, the US does not classify recession as just two quarters of decline.

The definition used in the country is broader, based on researchers at the National Bureau of Economic Research, a government economic body. The institution classifies recession as a broader downturn in the economy, spread across several sectors and lasting many months.

This is not yet the case for the US economy, which is experiencing full employment (the unemployment rate is at 3.6%) and consumption has grown in the quarter.

“When you’re creating 400,000 jobs a month, that’s not a recession,” Treasury Secretary Janet Yellen said this month.

However, rising risks of recession in the US are on the radar amid record inflation that has led to a sharp rise in interest rates.

The GDP result comes a day after the Fed, the US central bank, raised the country’s interest rate again by 0.75 point.

The US interest rate has now risen to the range of 2.25% and 2.50%. The rise is the fourth rise since March.

US inflation topped 9% last month, driven by the rise in commodity and fuel prices that have affected the entire chain with the war in Ukraine and the recovery of the global economy after the height of Covid-19.

Source: Exam