The U.S. National Bureau of Economic Research released its U.S. Gross Domestic Product report on Thursday.
For the second quarter, the U.S. GDP decreased by 0.2%, which marks the second consecutive decline. The first quarter’s decline was even larger at 0.4%. These are worrying signals for many who believe that the recession is not too far off. Generally speaking, the U.S. economy, like any other economy, is considered to be in recession when the gross domestic product (GDP) has declined for two consecutive quarters. But the U.S. Federal Reserve, commonly known as the Fed, the equivalent of the central bank, does not see it that way. For the president of the Fed, there is no reason to worry. At a press conference on Wednesday, Jerome Powell highlighted the considerable progress made recently. Mr. Powell mentioned other indicators related to spending and employment. He cited a significant drop in the unemployment rate and the increase in consumer spending, which “remains positive. More than 400,000 jobs were created last month.
Other economists and entrepreneurs are also very optimistic. This is the case of Bank of America’s chief economist, Aditya Bhave. “We don’t think we’re in a recession yet,” but the more important point here is that the underlying trend in domestic demand is weakening. There has been a clear deceleration since the first quarter,” Aditya Bhave, senior economist at Bank of America, was quoted as saying by the New York Times.
Anticipating the release of the National Bureau of Economic Research report, the U.S. Federal Reserve decided Wednesday to raise the interest rate by 0.75% for the second consecutive month. A measure aimed at fighting inflation, but which will also have negative consequences on the economy, according to some economists who believe that the increase in the interest rate could precipitate the recession. Some businesses could be forced to lay off employees and consumers will also find it difficult to purchase basic necessities. These are concerns that the White House is trying to allay. “After last year’s historic economic growth – and the recovery of all the private sector jobs lost during the pandemic crisis – it’s not surprising that the economy is slowing as the Federal Reserve acts to reduce inflation,” Biden said in a statement released following the GDP report adding that, “…But even as we face historic global challenges, we are on the right track and will emerge from this transition stronger and more secure.”
Although it is always highlighted when talking about recession, the decline in GDP in two consecutive quarters does not mean recession. There are other economic indicators to consider as well. However, it is considered a fundamental indicator in the measurement of economic output within a country. It is also a major aggregate in national accounts.
With more than 20 trillion dollars, the United States is the country with the highest GDP, followed by China: 14.72 trillion and Japan: 5 trillion. If the US were to enter a severe recession, it would most certainly have considerable repercussions on the global economy.