The US gross domestic product posted its second straight quarterly decline in an alarming development that economists widely view as the definition of an economic recession.
The economy shrank by 0.9% in the second quarter, contracting despite economists’ expectations of muted 0.3% growth, according to Commerce Department data. The GDP report is the broadest indication of the US economy’s performance.
The downtick followed a first-quarter report in which the US economy posted a surprise decline of 1.6%.
The GDP report was released one day after the Federal Reserve hiked its benchmark interest rate by three-quarters of a percentage point for the second straight month to cool inflation, which hit 9.1% in June.
The Fed’s sharp rate hikes have exacerbated investor concerns about its ability to engineer a “soft landing” by taming inflation without causing an economic downturn. Meanwhile, businesses and consumers alike are facing the dual impact of inflation that has sapped their buying power and higher interest rates that have made borrowing money more expensive.
The GDP downturn followed assurances by top economic policymakers that the underlying economy is strong. Fed Chair Jerome Powell indicated on Wednesday that he does not see the US economy in a recession at present.
“I do not think the US is currently in a recession and the reason is, there’s just too many areas of the economy that are performing too well,” Powell said at a press conference.
Treasury Secretary Janet Yellen has also rejected that notion that a recession is already underway.
“You don’t see any of the signs now,” Yellen said. “A recession is a broad-based contraction that effects many sectors of the economy. We just don’t have that.”
Yellen added that she would be “amazed” if the National Bureau of Economic Research declares a recession in the near future.
“I would be amazed if the NBER would declare this period to be a recession, even if it happens to have two quarters of negative growth,” she said. “We’ve got a very strong labor market. When you’re creating almost 400,000 jobs a month, that is not a recession.”
The National Bureau of Economic Research is viewed as an authority on recessions and defines them as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” While two straight quarters of GDP decline are informally seen as indicative of recession, the NBER does not assign a specific timeframe to its definition.
Meanwhile, the White House attempted damage control ahead of the report’s release. The Biden administration released a blog post arguing a recession was “unlikely” even if GDP declined for the second straight quarter.