Coming on the heels of a first quarter shrinking by 1.6 per cent, Thursday’s announcement of the second quarter setback by the Bureau of Economic Analysis divided economic pundits, and immediately became a political football, with Democrats suggesting the situation was not dire and painting a positive picture of the overall economy, and Republican portraying doom and gloom, calling it the “Biden recession.”
“We are on the right path and we will come through this transition stronger and more secure,” Biden said in statement, adding that “it’s no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation.” He cited strong consumer spending and a low unemployment rate as signs that the US economy remains robust.
The BLS numbers came a day after the Federal Reserve hiked interest rates by .75 per cent for the second time this year to tame inflation, which has been at a 40-year high for several weeks now. The hikes, along with the Russia-Ukraine war and its fallout, and now the GDP numbers, has spooked many analysts into forecasting a recession.
But economists are also mystified by the continuing strength in the labor market, with unemployment still at record lows and consumer spending still relatively health. Remarkably, the stock market too has continued to rise after a 20 per cent drop in June that met the definition of a bear market.
Some pundits maintained a recession was not imminent or that it would be be fleeting.
Economics Nobel laureate and NYT columnist Paul Krugman maintained that a “technical recession” doesn’t exist and the “the official definition of recession is a judgmental mix of levels and rates-of-change across several variables, most of which continued to expand in the first half of the year.”
Apparently, the only time America was in such “uncharted territory” — six months of contraction without a recession — was in 1947.
Republicans though piled on to the Biden dispensation, which is now on the defensive ahead of the November mid-term election where the House of Representatives and the Senate — both currently under Democratic control — will be up for grabs. If Republicans win one or both, then the Biden Presidency will be further hobbled in its final two years.