US activity fell in the second quarter at an annual rate of 0.9% compared to the first quarter. This negative performance follows the 1.6% decline in activity in the first quarter.
Usually, when the gross domestic product (GDP) declines for two consecutive quarters, everyone speaks of a recession in the United States. Except that the affair is a major political issue for Joe Biden, who has focused his political message on the growth found after the Covid pandemic and faces very delicate mid-term elections in November. Before the publication of the growth figure, Thursday, July 28, the Democratic president lit a counterfire, and explained that the country was not in recession. He was entitled to the help of Fed Chairman Jerome Powell, who also felt on Wednesday that the country was not, particularly in view of the excellent performance of the job market.
As a result, all of America is debating the definition of a recession. This state of the economy is officially proclaimed ex-post, by a panel of eight economists from the National Bureau of Economic Research. It is defined as a significant drop in activity, spread across the economy for several months. The panel takes into account factors such as employment, production, retail sales and household income.
In detail, the second quarter figure is less negative in scope than the first, but offers a less encouraging picture as it reveals a deterioration in the two pillars of the US economy, consumption and investment. In the first quarter, the decline in activity was caused by the deep deterioration in foreign trade, which rebounded. On the other hand, this quarter, companies heavily destocked products clearly unsuitable for consumers, which reduced growth. Above all, investment is hit, especially for residential real estate (–14%) and businesses (–3.9%), while consumption only walks on one leg, that of services. Americans go out to restaurants and travel, which increases service consumption by 4.1% (compared to 3.1% in the first quarter). On the other hand, they are abandoning goods purchased massively during the Covid (down 4.4% against an increase of 0.3% in the first quarter). As a result, consumption fell from 1.8% to 1%, while government spending continued to decline, especially at the federal level excluding defense (–10.5%).
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