US Economy Contracts, Fueling Recession Fears

According to the Bureau of Economic Analysis, the US economy shrank for a second quarter in a row. GDP fell by 0.9% on an annualized basis from April through June. 

By definition, two consecutive quarters of negative economic growth constitute a recession. The latest data was keenly awaited by investors seeking assurance that the US was not in recession territory.

Sensing that market watchers would receive the news badly, the White House has gone to unconventional lengths of assuring Americans that the economy is fundamentally sound. Citing the surging labor market, where monthly job gains are averaging more than 450,000 through the first half of this year, the Biden administration has been quick to douse any recession talk.

Economists say putting too much emphasis on this week’s GDP figures may be a mistake, as readings can change after new information comes in. Even Federal Reserve Chairman Jerome Powell said the first read of a GDP report should be taken "with a grain of salt."

What does this mean for me? 

Investors are terrified of a recession, which would see them having to change their investment strategies markedly. By the latest measure, the US economy is slowing. The Fed is saying this is what it has sought to create, while pessimistic commentators are saying it looks uncannily like a recession.

With  the US as the world’s biggest economy, these discussions matter to the rest of the world. A US recession will almost certainly mean the same fate for a host of industrialized nations.