US GDP Shrinks Again - Unofficial Definition Indicates Recession Just 2 Years After the Last One
The United States has entered a recession under the traditional definition of gross domestic product falling across two consecutive quarters.
On Thursday, the Commerce Department announced that American GDP fell an annualized 0.9 percent in the second quarter.
“Real GDP decreased less in the second quarter than in the first quarter, decreasing 0.9 percent after decreasing 1.6 percent,” the department’s news release said.
“The smaller decrease reflected an upturn in exports and a smaller decrease in federal government spending that were partly offset by larger declines in private inventory investment and state and local government spending,” it stated.
The news comes two years after the COVID-19 recession in 2020.
According to the Commerce Department, decreases in private inventory investment, residential fixed investment and government spending constituted the decrease in real GDP.
“The decrease in private inventory investment was led by a decrease in retail trade (mainly general merchandise stores as well as motor vehicle dealers),” the department said in its news release.
“The decrease in residential fixed investment was led by a decrease in ‘other’ structures (specifically brokers’ commissions),” it said.
“The decrease in federal government spending reflected a decrease in nondefense spending that was partly offset by an increase.”
The news indicated the nation has entered a recession under President Joe Biden in accordance with a rule of thumb long embraced by many economists.
According to Forbes, economist Julius Shiskin put forth the idea in 1974 that two consecutive quarters of declining GDP is a key metric in defining a recession, and it became the “common standard.”
Faced with high inflation and the upcoming midterm elections, however, the Biden administration in recent weeks embarked on a public relations campaign to redefine the meaning of recession to stave off scrutiny of its economic mishandling.
The administration’s attempts gained the support of several establishment media outlets, which published articles trying to justify a new definition of the term.
Notable economists such as left-leaning Paul Krugman joined the Biden administration’s recession denials, urging the public to deny the “two-quarter rule.”
“We might have a recession, but we aren’t in one now,” Krugman claimed in a Wednesday post on Twitter.
Every Economics textbook from 80s, 90s, and early 2000s: “a recession is defined as two consecutive quarters of negative GDP growth.”
Krugman: “Ignore that. Why? I don’t have a good reason. Also, inflation won’t be a problem.”
— Cornelius X. Carroll ???? (@CXCarroll) July 27, 2022
“We don’t think we’re in a recession just yet,” Bank of America senior economist Aditya Bhave said, according to The New York Times.
“But the bigger point here is that the underlying trend in domestic demand is weakening. You see a clear deceleration from the first quarter,” Bhave said.
Others pushed back.
“Rather than tackling the underlying economic problems, the White House is playing word games,” Phillip W. Magness, director of research and education at the American Institute for Economic Research, wrote Wednesday in The Wall Street Journal.
“Economists have long defined a recession as ‘a period in which real GDP declines for at least two consecutive quarters,’ to quote the popular economics textbook by Nobel laureates Paul Samuelson and William Nordhaus,” he wrote. “This definition isn’t perfect, but it describes almost every downturn since World War II.”
Magness said the Biden White House’s “attempt to wordsmith its way around a recession shows the dangers of politicizing economic terms.”
Others criticized the establishment media for bowing to Biden.
“The press is too busy carrying Joe Biden’s water to recognize the harm his policies have had on our economy. Texans see right through this spin when they pay dearly at the pump & grocery store,” said Republican Texas Attorney General Ken Paxton in a Wednesday post on Twitter.
The press is too busy carrying Joe Biden’s water to recognize the harm his policies have had on our economy. Texans see right through this spin when they pay dearly at the pump & grocery store. https://t.co/KTIKJnCoWa
— Attorney General Ken Paxton (@KenPaxtonTX) July 27, 2022
“Despite the brazen gaslighting from this administration and their cronies in the corrupt corporate media, we are in fact now in the Biden recession thanks to reckless spending by Democrats,” Republican Sen. Ted Cruz of Texas said in a tweet on Thursday.
“It’s time for this White House to take responsibility, acknowledge reality and reverse course before we see more American families suffer,” he said.
It’s time for this White House to take responsibility, acknowledge reality and reverse course before we see more American families suffer. 2/x
— Senator Ted Cruz (@SenTedCruz) July 28, 2022
Meanwhile, Biden tried to soften the blow of the GDP report.
“Coming off of last year’s historic economic growth — and regaining all the private sector jobs lost during the pandemic crisis — it’s no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation,” the president said in a statement Thursday on the Commerce Department’s report.
“But even as we face historic global challenges, we are on the right path and we will come through this transition stronger and more secure,” Biden said.
On Wednesday, the Federal Reserve raised the interest rates by three-quarters of a percentage point to fight inflation, The Washington Post reported.
“Restoring price stability is just something we have to do,” Federal Reserve Chairman Jerome Powell said, according to the outlet.
“There isn’t an option to fail to do that, because that is the thing that enables you to have a strong labor market over time.”
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