U.S. gross domestic product (GDP) contracted again in the second quarter, raising the risks of the world's largest economy sliding into recession, months before a key election for Joe Biden and the Democrats.

The contraction in GDP is 0.9% at an annualized rate, a measure favored by the United States, which compares to the previous quarter and then projects the evolution over the whole year, according to figures released Thursday by the Commerce Department.

Weak growth was expected, after a decline, in the first quarter already, of 1.6%.

The decline in GDP over the quarter is 0.2% if we simply compare to the previous quarter, as do other advanced economies.

The commonly accepted definition of a recession corresponds to two consecutive quarters of decline in GDP.

But the current situation “does not look like a recession, in my opinion”, reacted Joe Biden.

Its Finance Minister Janet Yellen also hammered home that the US economy remained "resilient", even if it was "slowing down".

Inflation reached a new record in June, at 9.1% over one year.

And slowing it down requires a cooling of economic activity.

However, it is "possible to slow inflation and maintain a strong labor market", according to the minister.

“Most economists and most Americans have a similar definition of a recession: major job losses and massive layoffs,” the Treasury Secretary said at a press conference.

"This is not what we are currently observing", she underlined, highlighting the more than one million jobs created over the last three months, and preferring to evoke "an economy in transition towards growth more stable and durable.

“Redefining the recession”

The opposition, however, castigates “Joe Biden's recession.

The economy has plunged for two quarters in a row,” the Republican Party commented on Twitter.

“The government just announced what every American has been feeling for almost a year – we're in a recession,” said Kevin McCarthy, House Republican leader.

He also accuses the Democrats of "(preferring) to redefine the recession than to restore a healthy economy".

The decline in GDP in the second quarter reflects lower business investment and home purchases by households, the Commerce Department said.

Governments, both federal and local, also curbed spending.

Consumption, the locomotive of American growth, has held up, but thanks to spending on services, and in particular rents, the prices of which have soared with inflation.

Purchases of goods have declined.

“Avoid a semantic battle”

So, has the United States plunged into recession or not?

The debate, which had already been raging for several days, seems to have started again.

“We should avoid a semantic battle,” Yellen asserted.

"Sometimes people use the word recession to say it's really bad inflation."

"We doubt that the economy is in recession given the strength of the labor market", underline in a note Lydia Boussour and Kathy Bostjancic, economists for Oxford Economics.

The unemployment rate, at 3.6%, is very close to its pre-pandemic level, which was the lowest in 50 years, and employers are still struggling to recruit.

The decline in GDP "reinforces stagflation (stagnation of activity and inflation), and triggers the red alert for recession", warns on the contrary on Twitter the economist Mohamed El-Erian, president of Queens' College of the University of Cambridge, and economic adviser to the insurer Allianz.

Only one organization in the United States is authorized to officially determine the periods of recession: the National Bureau of Economic Research (NBER).

But his announcements come several months later.

We “consider a series of indicators”, details on its site the NBER, which also observes “the extent of the decline in activity”.

  • Economy

  • UNITED STATES

  • Recession