As businesses increased exports and kept up a robust pace of equipment expenditure, the U.S. economy allegedly had a modest bounce in the second quarter. This might allay concerns in the financial markets that the economy had already entered a recession.
However, the economy was losing speed due to high inflation, which forced the Federal Reserve to rapidly tighten its monetary policy. This will still be evident in the advanced second-quarter GDP data from the Commerce Department on Thursday.
According to Boston College economics professor Brian Bethune, the industry is still functioning well. He further stated that while it is hardly as robust as it had been in 2021, a recession is still not yet occurring.
An analyst poll suggests that GDP growth picked up last quarter at an annualised rate of 0.5 percent. Estimates varied from a contraction rate of 2.1 percent to a growth rate of 2.0 percent.
However, it was completed before data on Wednesday that showed exports of non-defense capital equipment excluding aeroplanes increased significantly and the goods trade imbalance in June was the narrowest in seven months.
JPMorgan revised its Q2 GDP growth projection from a 0.7 percent pace to a 1.4 percent rate as a result of the news. At a rate of 1.0 percent, Goldman Sachs increased its prediction by 0.6 percentage points. Other Wall Street banks raised their forecasts as well. To a still-negative 1.2 percent rate, the Atlanta Fed increased its prediction by four-tenths of a percentage point.
Estimates for a second consecutive quarter of negative GDP growth were raised by a flood of dismal housing statistics, weak business sentiment surveys, and weak consumer sentiment readings. The first quarter saw a 1.6 percent rate of economic contraction.
To soothe voters ahead of the midterm elections on November 8 that will determine whether the Democratic Party led by President Joe Biden retains control of the U.S. Congress, the White House is vehemently combating recession talk.
On Thursday, Janet Yellen, the secretary of the Treasury, will hold a press conference to discuss the status of the U.S. economy.
A further drop in GDP would constitute a recession by the accepted definition. A recession, however, is defined by the National Bureau of Economic Research, the country’s official authority on recessions, as a significant decline in economic activity that affects the entire economy and lasts for more than a few months. This decline is typically reflected in manufacturing, work opportunities, economic output, and other indicators.
In the first half of the year, employment growth averaged 456,700 per month, and in the second quarter, industrial production grew at a 6.1 percent rate. But the housing market has cooled.
Although much would rely on the direction of inflation, which is far beyond the U.S. central bank’s two-percent target, slowing growth may urge the Fed to hold off on significant interest rate rises.
The Federal Reserve increased its policy rate by another 0.75% on Wednesday, bringing the total increase in interest rates since March to 225—bps, or basis points. Jerome Powell, the chair of the Fed, acknowledged the waning economic activity brought on by tighter monetary policy.
Export records helped reduce the trade imbalance, which is projected to have boosted GDP growth by up to 1.5 percentage points in the previous quarter. That would put a stop to seven consecutive quarters wherein commerce hindered growth.
Meanwhile, to determine how much steam the market still has, a measure of domestic demand that excludes trade, inventories, and government expenditure will be constantly monitored.
Approximately 85% of total spending is made up of final sales to domestic consumers, which rose at a 3.0% annual pace in the first period. Residential investment is anticipated to have decreased as a result of sluggish home sales and homebuilding, which decreased broker commissions.