The U.S. economy shrank for the second straight quarter, but President Biden dismissed concerns of a recession Thursday as “chatter” and plowed ahead with plans for a tax increase and another huge boost in spending over the objections of Republicans, who say those policies have sparked historic inflation and reversed growth.
Addressing the nation from the White House, the president noted that unemployment is at a 50-year low and quipped, “That doesn’t sound like a recession to me.”
The Bureau of Economic Analysis reported that total economic output contracted in the April-to-June period at an annual rate of 0.9%, raising alarms in many quarters that the U.S. is tipping into a recession in the midterm election year.
In the first quarter, GDP shrank at a yearly rate of 1.6%.
The latest decline was led by drops in private inventories and government spending, a downturn in the housing market, and a slight pullback in business investment. Consumer spending slowed.
Interest rates are rising steadily due to action by the Federal Reserve, which is seeking to rein in inflation that hit a 41-year high of 9.1% in June. Analysts say the higher borrowing rates will likely lead to some job losses and less business investment.
Despite the GDP report, stocks rallied for a second straight day. The three major indexes all gained more than 1%, with the S&P 500 leading the way at 1.2%.
Two consecutive quarters of an economic slowdown are an informal indication of a recession, although an official declaration would come much later — if at all — from the National Bureau of Economic Researchers.
But roughly 80% of Americans say the economy is poor, as average gas prices soared this summer to more than $5 per gallon and food costs have jumped by double digits in the past year. Mr. Biden’s job approval has plummeted to unprecedented depths as prices have risen.
Republicans said the GDP report shows that the Biden administration and congressional Democrats are fueling inflation and wrecking the economy by ramming through trillions in new spending on party-line votes.
“The government announced what every American has been feeling for nearly a year – we are in a recession,” House Minority Leader Kevin McCarthy, California Republican, said on the House floor. “Democrat spending caused this inflation. And now, they are doubling down on the same failed strategy.”
He was referring to a deal this week by Senate Democrats to spend $433 billion on a climate and energy package that would also raise taxes on corporations and wealthier taxpayers. It comes on top of a Democrats-only $1.9 trillion pandemic relief package in 2021 and a $1 trillion-plus infrastructure bill last spring that received some GOP support.
Senate Minority Leader Mitch McConnell, Kentucky Republican, said Democrats are on “a reckless taxing and spending spree that will delight the far left and hammer working families even harder.”
“Apparently our Democratic colleagues do not want to be responsible for just skyrocketing prices alone,” he said of the climate package. “They want Americans to be faced with skyrocketing prices and higher taxes and fewer jobs, all at the same time.”
Mr. Biden called his party’s breakthrough on the measure with Sen. Joe Manchin III, West Virginia Democrat, “a giant step forward.” He said the new spending would create jobs, reduce the federal deficit and lower the costs of utility bills and prescription drugs for families struggling with inflation.
He mocked critics who say a recession has begun.
“There’s going to be a lot of chatter today on Wall Street and among pundits about whether we are in a recession,” Mr. Biden said. “There’s no doubt, we expect growth to be slower last year than last year, and for the rapid clip we had. But that’s consistent with the transition to a stable, steady growth and lower inflation.”
He said there are plenty of signs of strength.
“If you look at our job market, consumer spending, business investment, we see signs of economic progress in the second quarter as well,” Mr. Biden said. “The best thing we can do right now to put our economy in a better position to make the transition to stable steady growth is for Congress to act.”
The U.S. economy grew last year at a strong 5.7% as businesses and workers shook off COVID lockdowns and other restrictions. Many economists blame global supply-chain disruptions for much of the inflation that has hit other industrialized nations in addition to the U.S.
Treasury Secretary Janet Yellen said Thursday that the U.S. is not in a recession, but the inflation-wracked economy is “transitioning.”
At a news conference in Washington, Ms. Yellen the current slowdown is “appropriate” after strong growth last year as the U.S. emerged from the pandemic.
“This report indicates an economy that is transitioning to more steady sustainable growth,” Ms. Yellen said. “That’s to be expected given how rapidly the economy grew when it was recovering from the pandemic and all of those job losses.”
Ms. Yellen said she didn’t want to get into “a semantic battle, agreeing that most consumers are worried about the economy due to inflation, whether or not the conditions meet the technical definition of a recession.
“I think their biggest concern is with inflation and high prices,” she said. “They feel they can’t afford to put gas in their gas tank…The discomfort that households feel, it’s not because of the job market. Jobs are readily available.”
She noted that the unemployment rate is low and that business bankruptcies are relatively low, factors that are not found in recessions.
“Most economists and most Americans have a similar definition of recession — substantial job losses and mass layoffs, businesses shutting down, private sector activity slowing considerably, family budgets [that] are under immense strain, a broad-based weakening of our economy,” she said. “That is not what we’re seeing right now. When you look at the economy, job creation is continuing, household finances remain strong. Consumers are spending and businesses are growing.”