IT'S CALLED RECESSION! GDP Numbers Show The Facts

By Seth Cutler | Saturday, 30 July 2022 05:15 AM
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IT'S CALLED RECESSION! GDP Numbers Show The Facts

An initial assessment by the Bureau of Economic Analysis showed Thursday morning that America’s GDP dropped a 0.9% annualized rate in the second quarter.

The report draws the second straight quarter of declining inflation-adjusted GDP — a situation generally used to define a recession. GDP tumbled at a 1.6% rate in the first quarter.

Thursday’s numbers suggest that the economy has been suffocating during the historic monetary policy tightening cycle by the Federal Reserve, which is trying to reduce uncontrollable soaring inflation. Residential investment cratered, a sign of the housing market slowing as mortgage rates rise. Consumer spending on goods also turned negative.

"We doubt the economy is in a recession given the labor market strength. But the reported softening in domestic demand confirms the economy is rapidly downshifting amid stubbornly-high inflation and aggressive Fed tightening," said economists with Oxford Economics. "The economy is battling headwinds of high inflation, aggressive Fed tightening, financial market volatility, and weakening global demand."

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While the Coronavirus pandemic was the most significant factor in GDP growth over the past couple of years, the greater problem facing the economy now is inflation and the Fed’s plan to tamp it down by raising interest rates.

The Biden administration had been working to preempt the Thursday report, fearing it would turn out to be in the red. The White House published a blog post claiming that two consecutive quarters of negative growth doesn’t necessarily suggest the country is in a recession.

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Government officials, economists, and many others use recession tags provided by the National Bureau of Economic Research, a private academic group. The bureau doesn’t provide a concrete definition. Rather, it relies on the judgment of a group of economists.

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The group broadly defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”

Republicans blamed Biden Thursday morning for causing a recession.

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“Democrats can’t solve the massive economic challenges our nation is facing because they won’t even admit there’s a problem to begin with,” said Calvin Moore, the communications director for the Congressional Leadership Fund, a super PAC that backs House Republicans. “Families need relief, but Democrats’ only solution is doubling down on the same failed policies that got us here in the first place.”

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Since last summer, inflation has topped crippling levels not seen in 40 years. Inflation, as measured by the consumer price index, clocked in at a blistering 9.1% in the 12 months ending in June — a number that was higher than expected.

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