Final revisions to the reported U.S. gross domestic product (GDP) figures for the first six months of 2022 have now confirmed the economy is mired in a recession.
The technical economic definition of a recession has been definitively met now that the Bureau of Economic Analysis reported that the final GDP revision for the second quarter of the year indicates the economy shrank by 0.6% in April, May, and June. That is less than the initially reported 0.9% decline but still marks the second consecutive quarter of negative growth.
We have now officially entered the technical definition of a recession
The final revision for Q2 GDP in the US just came in at -0.6% in line with the original release marking the 2nd quarter in a row of negative GDP growth
— Stock Market News – Evan (@StockMKTNewz) September 29, 2022
The final GDP number for the first three months of the year was a 1.6% decline. That was the worst quarterly number since the second quarter of 2020 when the economy was blasted by the onset of the COVID-19 pandemic.
The National Bureau of Economic Research (NBER) defines a recession as any period of negative GDP over two consecutive quarters. However, NBER has sometimes taken up to a year to confirm conditions for a recession have been met.
Wall Street has been nervous through the summer as fears have grown that interest rate hikes announced by the Federal Reserve will further tamp down domestic investment, production, and employment. The Fed is facing the difficult, if not impossible, task of using rate increases to battle raging inflation without further impairing capital investment.
Fed chairman Jerome Powell told reporters last week that “the chances of a soft landing are likely to diminish” as further rate increases are almost certain to come before the end of the year. He added that a “failure to restore price stability would mean far greater pain.”
GDP figures were also revised upward in 2020 and 2021, largely as a result of higher than previously reported consumer spending and exports. Economists have said that those revisions indicated that the pandemic’s impact on the economy was not as severe as originally believed. That also demonstrated that the economic recovery that was sparked during the Trump administration was stronger than originally believed.
The revisions also demonstrate that the massive COVID aid stimulus spending initiated by Joe Biden and Congressional Democrats directly led to the highest price inflation to hit the U.S. in four decades. As the economy was already on the path to recovery and sustained growth, the flood of federal spending sent demand into overdrive.