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News > U.S.

US Hits Technical Recession, but Many Sectors Remain Healthy

  • Flags on a building in New York City, U.S., 2022.

    Flags on a building in New York City, U.S., 2022. | Photo: Twitter/ @WSWS_Updates

Published 29 July 2022
Opinion

The U.S. gross domestic product shrank by 0.9 percent at an annualized rate in the April-June quarter. The drop came on the heels of last quarter's 1.6 percent decline.

The U.S. economy shrank for the second consecutive quarter, meeting the textbook definition of recession, but the job market and other economic data remain healthy.

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The U.S. gross domestic product (GDP) shrank by 0.9 percent at an annualized rate in the April-June quarter. The drop came on the heels of last quarter's 1.6 percent decline. Two back-to-back GDP decreases satisfy the technical definition of recession, although economists said there are a number of other criteria to consider. Many sectors and companies are faring remarkably well, and some economists said this must also be taken into consideration.

The GDP drop occurred amid a backdrop of surging inflation and the U.S. Federal Reserve's efforts to control it with the biggest rate hikes in decades. There are "all too many indications" that the Fed's anti-inflation moves are "setting us up for a hard economic landing by year-end," said Desmond Lachman, senior fellow at the American Enterprise Institute.

Consumer sentiment is close to a record low as inflation erodes wages. The housing market is crumbling due to a doubling of mortgage rates. U.S. exporters are facing strong headwinds as a result of a strong dollar and economic troubles in spots worldwide, said Lachman, a former International Monetary Fund (IMF) official.

Risks of a hard landing "should be raising serious questions" about whether the Fed is slamming on the brakes too hard in a bid to contain rapidly rising inflation. Mike Loewengart, managing director of investment strategy for E-Trade, said: "Today's reading only adds fuel to the fire that we are in or entering a recession."

"While it is certainly on the negative side of the estimates, keep in mind that a 1 percent decrease is relatively small and supports the idea that any recessionary environment will be mild," Loewengart said.

But on the flip side, much of the economy is doing well - at least at the moment. The jobless rate stands near record lows of 3.6 percent, and employers have added 2.7 million new jobs so far this year.

The National Bureau of Economy Research (NBER) emphasizes that more than just GDP determines whether there's an economic downturn. That includes unemployment and consumer spending, both of which have remained strong over the past six months.

But if economists agree on one thing, it's that the economy is in the midst of much uncertainty. Inflation stands at a 40-year-high of 9.1 percent, with the Fed aggressively hiking interest rates while trying not to trigger a recession.

"This is not officially a recession. It does meet a shorthand measure of two consecutive quarters of negative change, but the evidence is not sufficiently widespread - particularly employment change - to meet the more formal criteria," Brookings Institution Senior Fellow Barry Bosworth said.

"Certainly, the risks of recession have increased, but the future pattern of unemployment will be critical ... For the Fed, the issue is inflation in coming months. They need concrete evidence that it is slowing. The GDP release was very much in line with expectations," he added.

In another odd twist, U.S. markets actually rose on the news on Thursday, after rallying the previous day. The Dow Jones Industrial Average rose 1.03 percent, after climbing the previous day. The tech-heavy Nasdaq increased 1.08 percent in a two-day winning streak. Investors on Thursday continued to eye the week's avalanche of second-quarter earnings reports.

Etsy and Honeywell reported solid earnings, both increasing their share price. Ford Motors beat estimates for profits and revenue. In sharp contrast, Meta Platforms (Facebook) stock dropped after less-than-stellar earnings.

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