The US economy has taken another major step towards recession, with economic output contracting for the second consecutive quarter, a situation often referred to as a “technical recession”.
When the first quarter results were released, they were generally presented as having no real significance, the result of a statistical aberration. But the latest data indicates that they were the start of a trend.
The official definition of a recession in the United States is determined by the National Bureau of Economic Research (NBER) and it won’t make a decision for some time. But whatever he decides, data from the past two quarters point to a significant slowdown over the past six months. During the December 2021 quarter, the US economy was growing at an annualized rate of 6.9%.
Breaking down the data, a number of findings point to underlying trends. Consumer spending, which accounts for about two-thirds of total economic output, rose just 1% for the quarter, down from the 1.8% increase in the first. Consumer spending growth is now at its lowest level since the start of the pandemic.
Real wages are down, with real disposable income falling 0.5% for the quarter, the fifth consecutive quarterly decline.
The main drag on growth was the decline in business inventories, which reduced overall income by 2%. Earlier, Walmart, the largest U.S. retailer, announced it was cutting prices in a bid to eliminate inventory that had piled up due to lower demand. Business investment also declined.
There is a concerted attempt to deny that the recession is setting in. Earlier this week, US Treasury Secretary Janet Yellen said the US economy was not in a recession and she would be “amazed” if the NBER said it was.
One basis for these claims is the low unemployment rate of 3.6%. How can there be a recession if the unemployment rate is at its lowest in 50 years? This is ignoring the fact that hiring is starting to be scaled back by big business and that rising unemployment is usually one of the last indicators to appear when there is a downward trend.
Furthermore, there also seems to be a repeat of the COVID playbook: continually denying reality by pointing out low unemployment and somehow the underlying economic conditions will cease to exist.
But a key factor in what is continually being called the “tight labor market” is the death of more than a million people – many of them of working age – and the millions who have been affected by COVID. and are unable to work for periods due to the immediate infection, the need for others to leave the workforce to care for family and loved ones, and the growing impact of Long COVID on reducing labor supply.
Statements aimed at concealing the situation are one thing, but the objective reality is another.
the wall street journal (WSJ) Writer Grep Ip noted that while a recession is finally declared, “the message from the latest economic data is equally disappointing: the recovery is effectively over.”
He pointed out that “key indicators of economic activity have come to a halt”.
“Total household and business spending did not increase in the second quarter after averaging 6% annualized growth over the previous six quarters.”
In another article, the WSJ cited remarks by James Knightly of financial giant ING who said a slowdown was “really only a matter of time” due to pressure on households from inflation. and equity markets under conditions where “the housing downturn [is] really speed up now.
The Biden administration is leading the campaign to deny economic reality as it is on COVID. At a news conference after the GDP figures were announced, Yellen said economists and most Americans have a definition of a recession that includes job losses and mass layoffs, industry activity private sector slowing dramatically and “family budgets under immense pressure” and that’s “not what we’re seeing fight now.
Family budgets “are not under immense pressure” – one can only wonder what planet Yellen lives on?
President Biden released a statement shortly after the data was released, saying it was no surprise the economy was “slowing as the Federal Reserve acts to reduce inflation.”
Stimulating a slowdown and a recession is the Fed’s deliberate policy, not to drive down inflation – its measures won’t lower the price of food, gas or untangle global supply chains – but aim to suppress the growing movement of workers’ wages. to classify.
The Fed’s target is widely known in ruling economic and political circles, but it is being kept secret, shrouded in the mantra of the need to fight inflation, lest its exposure will further fuel growing anger. of the working class.
In an effort to restore her “left” image in sections of the Democratic Party, Senator Elizabeth Warren wrote an opinion piece in the WSJ this week that partially lifted the lid on what is really going on.
She noted that the Fed’s aggressive rate hikes are largely ineffective against soaring inflation and warned that interest rate hikes were aimed at “reining in demand” and if the Fed raised too much or too sharply “the The resulting recession would leave millions of people…with smaller paychecks or no paycheck at all.
Warren pointed to remarks by former Democratic Treasury Secretary Lawrence Summers who recently told the London School of Economics: “We need five years of unemployment above 5% to contain inflation – in other words , we need two years of unemployment at 7.5% or five years of 6% unemployment or one year of 10% unemployment.
But still keen to ensure the working class remains confined within the confines of the Democratic party, Warren praised the actions of the Biden administration and said she recognized that the United States had “many tools to fight.” against inflation that would not make the economy smaller and Americans poorer.
Such claims ignore two facts: that the administration’s limited actions will do little or nothing to lower prices, and Biden has said he fully supports the Fed’s actions.
In the United States, the world’s largest economy, GDP figures were announced just days after the International Monetary Fund revised down its growth estimate and warned that the global economy was on the brink of collapse. recession.
In the world’s second-largest economy, China, growth in the June quarter was just 0.4%, narrowly avoiding a contraction, as growth estimates for the next few months were revised down.
The third key driver of the global economy, the euro zone, is on the brink of recession, with warnings of a major slowdown in its biggest economy, Germany, by the end of the year due to the Russian gas supply cuts following the US-led war in Ukraine.