U.S. GDP Shrank 0.6% in the Second Quarter – Technically That’s a Recession

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Photo by Wance Paleri on Unsplash

The U.S. economy shrank slightly less than the first reported 0.9% in the second quarter, coming in at 0.6% during a second read. However, it shrank.

According to the National Bureau of Economic Research, the “textbook definition” of recession is two consecutive quarters of negative economic growth and high unemployment, low or negative GDP growth, falling income, and slowing retail sales.

According to Fox Business News, the economy had declined 1.6% from January to March of 2020 due to a COVID-induced recession. Additionally, Fox reported that consumer spending and unemployment are also included as indicators of whether a recession is occurring.

According to the new report, although unemployment remains low, consumers are spending less than they did during the winter, with personal consumption expenditures inching up 1% for the period as high inflation consumed Americans’ purchasing power.

Jerome Powell, the chair of the Federal Reserve, told reporters last month he didn’t believe the U.S. was in recession.

“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,” Powell said. “This is a very strong labor market. … It doesn’t make sense that the economy would be in a recession with this kind of thing happening.”

However, the Fed pointed to “significant” interest rate hikes to cool the roaring inflation fire burning in the U.S.  Central bank policymakers raised the benchmark interest rate by 75 basis points in June and July for the first time since 1994. Another increase of that magnitude is possible in September, depending on forthcoming economic data.

Now, add in the concerns that Biden’s student loan forgiveness will increase inflation; if the U.S. isn’t currently in a recession, how long will that last?