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GDP is negative for second consecutive quarter, economy shrinks 0.9%

Jul 28, 2022


The U.S. economy shrank for the second straight quarter, stoking recession fears. Government data showed Thursday that the country’s gross domestic product contracted by 0.9% in the second quarter, following a 1.6% contraction the first quarter of the year.

Traditionally, people think of a recession as two consecutive quarters of negative growth, which is what we’ve now seen to start 2022. However, the official recession call comes from the National Bureau of Economic Research, which takes far more data points into consideration than just GDP.

Think a recession is two consecutive quarters of negative growth? Think again.

One of the strongest arguments against recession conditions is the country’s labor force. From January to June, while GDP was contracting, the unemployment rate dropped from 4% to 3.6%, nearing a 50-year low.

“This is a very strong labor market…2.7 million people hired in the first half of the year, it doesn’t make sense that the economy would be in a recession with this kind of thing happening, so I don’t think the U.S. economy is in recession right now,” Federal Reserve Chair Jerome Powell said Wednesday.

The Bureau of Economic Analysis said less government spending and less inventory investment made by merchandise stores and car dealerships contributed to the economic contraction in the second quarter. Meanwhile, an increase in exports and more spending on services like travel helped the economy shrink less than it did the first quarter.

In the first quarter, the GDP contraction of 1.6% was driven largely by a massive trade deficit. The economy was seeing robust domestic demand for imports while exports to other countries cooled.

Thursday’s second-quarter reading is what the government calls an “advanced estimate,” which means it is the first reading of the data. The 0.9% contraction can change over the next couple of months of analysis. The next reading is Aug. 25.