Jul 29, 2022

U.S. Economy Shrinks for Second Consecutive Quarter

Jul 29, 2022 | Banks, Market

By: Ken Chase.

The Bureau of Economic Analysis confirmed many Americans’ fears on Thursday, reporting that the U.S. gross domestic product fell by 0.9 percent in the second quarter of 2022. That marks the second consecutive quarter of negative growth for the year, which traditionally indicates that the economy has entered a recession. The contraction also defied Dow Jones expectations of a 0.3 percent gain.

Despite the grim news, White House officials and their media allies continued to insist that the economy remains strong and dismissed suggestions that the U.S. was in recession. Over the last week, various officials and media outlets have argued against the commonly used definition of recession, citing the strong labor market and other factors as indicators that the current economy cannot be judged by that historical metric.

For example, administration allies have pointed to continued strong hiring as a sign that the economy cannot be in recession. As some observers have noted, however, the U.S. economy has had roughly ten million job openings for more than a year, largely due to the fact that the labor participation rate was decimated by forced business shutdowns during the early days of the pandemic.

The administration has also cited increased worker income as a positive, insisting that workers have more stability in earnings now and a greater ability to make ends meet. Consumer confidence surveys suggest that Americans disagree, however, as persistently high inflation continues to outpace any wage growth.

Federal Reserve Chair Jerome Powell is also on record dismissing any notion that the U.S. economy is in recess. Meanwhile, the Fed just raised interest rates by another 75 basis points this week as it continues its efforts to battle high inflation.

In arguing against any suggestion that two consecutive quarters of negative growth signals a recession, the administration and media outlets have cited the National Bureau of Economic Research’s definition, which defines such a downturn as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”

Nevertheless, as CNBC recently noted, “every period since 1948 of two consecutive negative quarters has coincided with a recession.”

Semantics aside, the reality is that Americans may themselves ultimately decide the economy’s immediate fate. Consumer sentiment can play a huge role in economic outcomes, with higher consumer confidence boosting spending and negative sentiment leading to less economic activity. When Americans doubt the health of the economy, they often pull back on spending, which can further accelerate GDP decline.

A recent survey of Americans found that 65 percent of registered voters – including a majority of Democrats – said that the U.S. is already in a recession. That’s higher than a 2020 survey at the height of the pandemic shutdown, where only 51 percent said that the economy was in an actual recession.

Learn more 

First Citizens to Buy Silicon Valley Bank

First Citizens to Buy Silicon Valley Bank

North Carolina-based regional bank First Citizens has agreed to purchase Silicon Valley Bank, according to a March 26 statement from the Federal Deposit Insurance Corporation (FDIC). The FDCI confirmed that it had agreed to the deal, which will see the regulatory...

PacWest Moves to Boost Liquidity

PacWest Moves to Boost Liquidity

Regional bank Pac West Bancorp has secured a $1.4 billion line of credit from an Atlas SP Partners finance facility as part of its effort to boost liquidity, after customers withdrew roughly 20% of their deposits in the first few months of 2023. According to a...

UBS to Buy Credit Suisse in Emergency Rescue

UBS to Buy Credit Suisse in Emergency Rescue

UBS reached an agreement to purchase embattled Credit Suisse on Sunday for a reported $3.2 billion. The agreement came after weekend negotiations orchestrated by the Swiss National Bank and Swiss regulators, which pushed for the emergency rescue as a way to shore up...