The U.S. economy’s second quarter of shrinking has Americans concerned that we may be heading into a recession, but the White House claims that’s just not the case.
President Joe Biden’s approval rating has been dropping as the Federal Reserve raises interest rates and Americans struggle to afford gas and food.
From April to June the U.S. contracted .9% for the second quarter of the year, and the first quarter that number was 1.6%, according to 13 WHAM.
Two quarters seeing a drop in a row are signs for a recession.
As Americans start to express worry, both the Federal Reserve and White House made sure to point out strong parts of the economy.
This includes a strong labor market, which wouldn’t exist if we were headed for a recession according to them.
Economists agree with the White House that we are not headed into a recession.
In order for that to be happening, the National Bureau of Economic Research states that there must be a significant decline in economic activity in every sector.
This would need to last for more than a few months.
Unemployment rates are low and jobs are being added quickly.
The housing market is finally seeing a slow down since the start of the pandemic, balancing itself out as interest rates rise.
During the 2008 financial crisis, mortgages were given to people who couldn’t afford them through risky lending practices.
Thanks to safeguards put in place, that did not happen this time.
White House defensive of Americans calling what’s happening in the economy a recession
The secon quarter GDP was announced on Thursday, which is when the White House was quick to respond.
The point of the response was that this isn’t a recession, nor are we headed for one.
President Joe Biden spoke publicly twice on Thursday, according to CNBC.
He touched on low unemployment rates, new investments in manufacturing, and other positive things happening. These are things that would not point to a recession.
Biden met at a roundtable event with chief executives of Corning, Marriott International, Bank of America, TIAA and Deloitte. This was to showcase the strength of the economy.
Unfortunately, data is showing the consumer and business confidence levels are plummeting, despite Biden’s optimism.
Inflation has stripped Americans of their purchasing power.
This means those who really fear a recession are going to spend even less money.
What is used to define a recession
CNN Business reports that there is no textbook formula or definition for whether the U.S. is heading into a recession.
Those who decide are on an eight person economist committee called the Business Cycle Dating Committee.
The committee runs under the National Bureau of Economic Research.
This research team has yet to use the word “recession” as a description of what is going on.
There are different things used that make up the entire economy.
This includes inventories, jobs, inflation and rate hikes, consumer sentiment and spending, and a yeild curve.
Inventories could be pointing to a recession.
This means businesses are expanding less, or buying less goods.
One of the reasons for this may be that they stocked up on good ahead of the pandemic. Now they are working with overstock.
Consumer demand may be weakening as well.
Jobs point to a recession not happening.
The unemployment rate is the lowest it’s been in 22 years with millions of new jobs added.
Unfortunately, inflation doesn’t look as healthy with a 9.1% increase, the highest it’s been in almost 30 years.
Consumer spending has seen a slight increase with people spending more now than they were one month ago.
Finally, the yield curve doesn’t look as good as it starts to dip. It’s used as one of the most reliable signs of a recession.
The yield curve plots the return of Treasury securities, and has preceded every recession since 1955.
According to Axios, the stock market is doing great despite Americans fears of a recession hitting.
Related: Interest rates have increased for the fourth time this year– Will I be affected?
Samantha edits our personal finance and consumer news section. Have a question or lead? Send it to [email protected].