GDP fell at a 0.6% annualized rate in the second quarter, a revised estimate from the Bureau of Economic Analysis showed Thursday morning, 0.3 percentage points better than initially estimated.
The updated report confirmed the second straight quarter of declining inflation-adjusted GDP — a situation commonly used to define a recession. GDP tumbled at a 1.6% rate in the first quarter.
But gross domestic income, which is an alternative measure of economic growth (that theoretically should be in sync with GDP), increased by 1.4% in the second quarter — a positive sign for the country’s economic situation.
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“This measure, which is theoretically identical to GDP, continued to climb in the first half of the year and suggests the economy was slowing rather than contracting,” said economists from Oxford Economics.
Gross domestic output, which is the average of GDP and GDI, was up 0.4% in the second quarter after posting an even slimmer annualized gain in the first quarter.
While the coronavirus pandemic was the biggest factor in GDP growth over the past couple of years, the bigger problem facing the economy now is inflation and the Federal Reserve’s plan to tamp it down by raising interest rates.
The Fed has raised rates at a historic scale and pace and is set to conduct another massive rate hike following the meeting of the Federal Open Market Committee next month. The increases have started to crack the economy, with the housing market in fast decline alongside negative GDP growth.
Republicans have seized on the two consecutive quarters of negative GDP growth and are claiming the economy is now in the throes of a recession.
Government officials, economists, and many others use recession designations provided by the National Bureau of Economic Research, a private academic group. The bureau doesn’t provide a concrete definition. Rather, it relies on the judgment of a group of economists.
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The group broadly defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
The surprisingly strong labor market has conflicted with the notion that the economy is in a recession, though. The economy added a robust 528,000 jobs in July. The unemployment rate also fell to 3.5%, matching the ultralow level it was at prior to the pandemic.
