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The US Has Crashed Into A Recession

The US Has Crashed Into A Recession

The US economy has gone into a recession after negative economic growth.

The US economy has crashed into a recession after the nation's gross domestic product (GDP) shrank by 0.9 percent between April and June.

That follows an economic shrinkage of 1.6 percent in the previous quarter, which covered the time between January and March.

A shrinking economy for two quarters in a row is the unofficial definition of a recession, but in the US the National Bureau of Economic Research has to make an official declaration which it has not yet done.

Nonetheless, this is bad news for Joe Biden's administration going into a series of midterm elections at the end of 2022, which are tipped to see the Republicans make gains.

However, the White House has argued that parts of the American economy remain strong and government officials have said they believe the US economy is fundamentally still sound.

US President Joe Biden.
Kristoffer Tripplaar/Alamy Stock Photo

Seemingly anticipating this event, the White House last week posted a blog attempting to explain that even if GDP was shrinking there were other positive signs in the economy.

They pointed towards a continued growth in real income minus transfers, real spending, industrial production, and employment compared to April 2020 when the last recession hit during the pandemic.

The White House also pointed towards more than a million jobs being created in the second quarter of the year, even if GDP was shrinking.

Jerome Powell, chair of the Federal Reserve, said yesterday (27 July) that he didn't believe the US economy was in a recession.

He said: "I do not think the U.S. is currently in a recession, and the reason is there are too many areas of the economy that are performing too well. Price stability is what makes the whole economy work."

Does the US economy need saving, or is the way we measure a recession flawed?
Robert Hyrons/Alamy Stock Photo

A verdict on whether the US has hit the official definition of a recession is likely some way off, and the initial figure of a 0.9 percent economic contraction is subject to revision as more data rolls in.

Nonetheless, with rising costs of food and fuel driving inflation to 9.1 percent many people will be feeling the financial squeeze whether it's officially a recession or not.

According to CNN, some economists are warning that part of the reason the US economy appears to have crashed is because businesses were stockpiling at the end of 2021.

Anna Rathbun, chief investment officer at CBIZ Investment Advisory Services suggested that stockpiling boosted growth in the final quarter of 2021 that would otherwise have been spread throughout the early months of 2022.

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Featured Image Credit: Gregory Adams/Radharc Images/Alamy Stock Photo

Topics: US News, Money