GDP Contracts Again, Sparking New Recession Angst

The U.S. economy contracted for the second consecutive quarter, with gross domestic product (GDP) decreasing at a 0.9% annualized rate after decreasing 1.6% in the first three months of this year, the Bureau of Economic Analysis (BEA) reported on Thursday (July 28).

Two consecutive quarters of GDP contraction is a typical sign of a recession, but economists have disagreed on what will constitute a full-on slump in a post-pandemic economy bookended by record-high inflation and a hot job market.

“The numbers are baffling right now — we just don’t normally see declining GDP and rising employment,” Betsey Stevenson, an economics professor at the University of Michigan and research associate at the National Bureau of Economic Research, told the Washington Post.

“Employment is still growing. Consumer spending has not taken much of a hit. Households have stronger balance sheets than we normally have. Even with a negative number in the second quarter, it’s going to take some serious thought to figure out whether that’s really enough to say that we’re in a recession,” Stevenson said.

Personal consumption, accounting for about two-thirds of total economic output and the biggest part of the economy, rose at a 1% pace, a deceleration from the first quarter of this year, according to the BEA.

The BEA’s report showed that inflation hit a new four-decade high during the second quarter, while consumer spending slowed a bit.

See also: Why Retailers Should Worry About Inflation but Dread the Wealth Effect

A new PYMNTS survey of U.S. consumers shows that it’s the wealth effect that is the more important determinant of whether consumers with money to spend will actually spend it. High earners have likely had a larger percentage of wealth decimated due to the freefall in the stock market. Their change in spending habits will be felt since it accounts for a bigger slice of the retail economy pie.

The National Bureau of Economic Research considers employment, output, retail sales and household income when defining a recession, which registers as having a substantial drop in economic activity across the economy for more than a few months.

Read more: As Walmart Warns, Consumers See Nearly 2 Years of Inflation Pain Ahead

New PYMNTS research shows that U.S. consumers feel worse off financially now than in 2021, and don’t expect any relief until the middle of 2024. The research comes as Walmart president and CEO Doug McMillon warned that earnings would be off as food inflation hits the double digits and is higher than it was at the end of the first quarter, PYMNTS reported on Tuesday (July 26).