BarcelonaThe US economy contracted between April and June by 0.9% compared to the same period in 2021 and by 0.2% compared to the previous quarter, according to official Commerce Department data released Thursday. That means the US economy has strung together two consecutive quarters of contraction, pushing the world’s leading power into a technical recession. However, the exceptional situation at the end of the pandemic and the high inflation means that this reduction in activity does not come accompanied by the usual signs of a crisis, but takes place in a context of low unemployment, creating jobs and expansion of many sectors.
The US economy since the start of the pandemic
Evolution of North American GDP. Index where 100 = fourth quarter of 2019
In the first quarter, the gross domestic product (GDP, the indicator that measures the economic activity of a territory) already fell by 0.4% compared to the previous quarter and by 1.6% compared to a year ago . The declines in activity during the first six months occur in the midst of price escalation, with an inflation rate at the highest levels in the last 40 years as a result of the increase in the price of energy and raw materials caused by the Russian invasion of Ukraine.
In Europe, as among financial analysts, a country is considered to technically enter a recession if it chains two consecutive quarters with declines in activity, as has happened in the US in the first two quarters of 2022. Now, in the United States the body that officially marks when there is a recession is the National Bureau of Economic Research (NBER) and, until now, it has never used this criterion. On the contrary, what the NBER does is to analyze a whole series of economic variables, among which there is the GDP, but also many others, such as job creation, unemployment, foreign trade data, family consumption or both business and public sector investment.
All the recessions marked by the NBER have had two or more consecutive quarters of decline, but it is also true that all have equally been periods of job destruction and increases in unemployment, which is not fulfilled this 2022. In fact, it happens quite the opposite: in the first half of the year, the US labor market has created an average of more than 456,000 new jobs each month, and throughout this time the unemployment rate has remained stable around 4%, one of the lowest recorded in the entire history of the country.
Strong job market
In this sense, the country’s authorities deny that the economy is in recession. “We will not be in recession,” declared Monday the president of the USA, Joe Biden, an idea that was reiterated on Thursday by the president of the Federal Reserve – the American central bank -, Jerome Powell. “I don’t think the US is in a recession right now and the reason is that there are too many areas of the economy that are doing too well,” Powell said.
Among these data, according to the president of the Federal Reserve, is the labor market. Just this Thursday the US Department of Labor has published positive figures on unemployment benefits. In the week of July 23, the number of claims fell by 5,000 to 256,000 claims for benefits, slightly higher than economists had forecast, according to Reuters, but still below the range of 270,000 to 350,000 which warns of an increase in unemployment.
Consumer spending – one of the most important indicators, as it accounts for more than two-thirds of US GDP – rose 1% year-on-year, but slowed by eight tenths compared to the rate in the first quarter. This cooling of consumption had an impact on business spending, which fell due to the decision of the retail trade sector not to accumulate more stocks in the face of possible falls in sales. In addition, difficulties in sectors such as automotive due to supply problems and logistical bottlenecks also reduced business activity.
The danger of a decline in activity marked Powell’s press conference on Thursday, when he announced the fourth increase in interest rates this year, which is aimed at cooling the prices of consumer goods and services , but which can also damage growth because it makes borrowing more expensive. It is precisely the housing investment of families that fell due to the reduction in the number of mortgages, less affordable than a few months ago due to the higher interest rates.
Public administration expenditure also fell, which a year ago was still high as a result of aggressive fiscal incentives in the form of direct aid to families and companies to deal with the pandemic. The United States emerged in 2020 from the crisis caused by the confinements much faster than in Europe, where governments allocated less money to subsidies for the real economy.