Joe Biden has insisted that the US is not in a recession despite after official figures showed the world’s biggest economy had shrunk in two consecutive quarters.
The US President said the downturn was “no surprise”, pinning it on waning momentum and the Federal Reserve’s efforts to curb inflation. But pointing to record low unemployment, he added: “That doesn’t sound like a recession to me.”
GDP fell at an annualised pace of 0.9pc between April and June, compounding a 1.6pc decline in the first quarter.
Back-to-back periods of consecutive negative growth fit the widely-accepted definition of a technical recession, though academics at the US’s National Bureau of Economic Research will have the final say as to whether the period is recorded as an official downturn.
Economists say they may not categorise it as a recession due to the strong labour market and consumer spending growth.
However, the headline figure overshadowed news that Mr Biden’s stalled economic agenda had reached a surprise breakthrough in its landmark $369bn (£303bn) climate change deal.
Mr Biden said: “There’s no doubt we expect growth to be slower than last year, the rapid clip we had, but that’s consistent with the transition to a stable, steady growth and lower inflation.
“If you look at our job market, consumer spending, business investment, we see signs of economic progress in the second quarter as well.”
The slowdown came as the Fed undertook a historic series of rate increases to curb inflation, which has soared to a four-decade high in the wake of the pandemic.
It was seized upon by the US Republican Party to criticise Mr Biden’s handling of the economy ahead of midterm elections this autumn.
Mike Pompeo, the former secretary of state, was among those criticising Mr Biden. “No matter how Joe Biden wants to define it, Americans know we’re in a recession,” he said.
A contraction in the world’s biggest economy will have severe consequences for other countries due to the global influence of the US consumer, although the nature of the fall in output was extremely unusual.
Personal consumption – a measure of how much US consumers are spending, and a critical bellwether for the health of the global economy – rose by 1pc, although this marked a slowdown from 1.8pc in the previous quarter.
Unlike most downturns, when a fall in activity is accompanied by job losses and business closures, the latest figures suggest America’s labour market is still booming.
The US added around 2.7m jobs over the first half of the year. Cracks are beginning to show, however, with major retailers such as Walmart and Target slashing their profit forecasts and tech giants such as Apple slowing hiring.
Andrew Hunter from Capital Economics said the NBER would not declare a recession, with many indicators “still in expansionary territory”.
James Knightley from ING said: “Officials will say this isn’t a ‘real’ recession, but with the squeeze on households intensifying it is only going to be a matter of time.”
Rather than being spurred by a broad downturn in activity, the negative GDP reading was instead down to companies working through swollen inventories.
There was a drag of two percentage points from a slowdown in the buildup of stocks. The reading stunned Wall Street, where economists had been expecting GDP to grow at an annualised pace of 0.4pc.
However, the window of predictions was wide, with forecasts ranging from a 2.1pc contraction to growth of 2pc.
The slowdown is unlikely to deter the Fed from pursuing further aggressive rate increases.
After a 0.75 percentage point increase in its key rate on Wednesday, Mr Powell said “it’s necessary to have growth slow down” to create slack in the economy and ease inflationary pressures.
It came as mounting fears of a winter marred by energy shortages sent confidence in Europe tumbling to its lowest level since lockdown.
Brussels warned of “significant losses” in business and consumer confidence in July as the Kremlin threatens to worsen the cost of living crisis.
In Germany, prices jumped 8.5pc in July in a surprise acceleration after falling back the previous month. The rate of inflation was just short of the record high of 8.7pc hit in May.
The European Commission said its economic sentiment indicator, which tracks confidence among households and firms, “plummeted” 4.5 points to 99 in the eurozone, the lowest level since February 2021.
Meanwhile, consumer confidence has declined to levels last seen at the depths of the financial crisis. European household views on their future finances are at the most pessimistic on record.
Manufacturing and services firms also suffered “significant” deteriorations in sentiment as industrial production expectations slumped to a 20-month low.