The US economy had the second contraction since early in the pandemic shrinking -0.9% vs +0.5% expected in the second quarter after a -1.6 percent decline in the first, confirming that a recession has already begun. A recession is defined as two consecutive negative quarters of growth. Bewilderingly the Biden Administration through the President himself and Treasury Secretary Yellen continue to deny the US is a recession and the definition is wrong. What these continual false truths has done is destroy consumer sentiment as we have seen which in itself hurts GDP.
USA Advance Q2 2022 GDP highlights
Gross domestic product, adjusted for inflation, fell 0.2 percent in the second quarter, the equivalent of an 0.9 percent annual rate of decline, the Commerce Department said Thursday.
The 0.2 percent decline followed a contraction of 0.4 percent in the first three months of the year meaning that the U.S. economy has entered a recession a mere two years after it emerged from the last one.
Highlights
- US Q2 advance GDP -0.9% vs +0.5% expected
- Q1 final was -1.6% annualized (revised lower)
- Consumer spending +1.1% vs +1.8% prior a marked slowdown from previous months as purchases of goods declined and spending on services grew only moderately.
- Consumer spending on durables -2.6% vs +5.9% in Q1
- Residential fixed investment, or home construction, -14% under weight of rising interest rates, which have put mortgages out of reach of more would-be home buyers.
- GDP deflator +8.9% vs +7.9% expected
- Core PCE +4.4% vs +4.5% expected
- GDP ex motor vehicles -1.0%
- GDP final sales 1.1%
- Final sales to private domestic purchasers or real GDP excluding inventory investment, net exports and public sector spending & investment. Economists favor as a metric that cuts out volatile inventories and government spending
- Fixed investment in nonresidential structures -11.7% as construction of factories and warehouses, also an interest rate-sensitive sector slowed
- Business investment +9.2% vs +2.9% in Q1
- Federal government expenditures -3.2% as stimulus spending continues to fade out and oil was released from the Strategic Petroleum Reserve, although defense spending grew 2.5% as military aid flowed to Ukraine
Business investment and construction activity both fell in the second quarter after rising in the first. Consumer spending, adjusted for inflation, remained positive but slowed.
High inflation is cutting into households’ purchasing power. Consumer prices rose in June to a four-decade high. Elevated inflation is wiping away pay gains for many workers. The GDP miss largely driven by higher inflation dragging down real growth. The deflator at 8.9% took a whole percentage point off.
The labor market is a key source of economic strength right now. Jobless claims are hovering near historically low levels amid a shortage of available workers. Businesses are hiring and ramping up wages, supporting consumer spending, the economy’s main driver.
Personal Income
Current-dollar personal income increased $353.8 billion in the second quarter, compared with an increase of $247.2 billion in the first quarter. The increase primarily reflected increases in compensation (led by private wages and salaries), proprietors’ income (both nonfarm and farm), personal income receipts on assets, and rental income (table 8).
Disposable personal income increased $291.4 billion, or 6.6 percent, in the second quarter, in contrast to a decrease of $58.8 billion, or 1.3 percent, in the first quarter. Real disposable personal income decreased 0.5 percent, compared with a decrease of 7.8 percent. Personal saving was $968.4 billion in the second quarter, compared with $1.02 trillion in the first quarter. The personal saving rate—personal saving as a percentage of disposable personal income—was 5.2 percent in the second quarter, compared with 5.6 percent in the first quarter.
Source: Bureau of Economic Analysis
From The TraderCommunity News Desk