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Biden denies, but is the US already in recession?

In recent years, the entire world has experienced economic turbulence, driven by the rise of Covid 19, shrinking productivity and emergency financial stimulus. Conflict in Ukraine has compounded a delicate post-pandemic recovery to send energy prices skyrocketing – smashing business and family budgets altogether. According to most economic researchers, the US could be faced with an imminent recession. However, US President, Joe Biden, has constantly denied it in his interviews, recently “It’s not inevitable” and that the country is in a stronger position than most countries in the world to combat inflation.

However, an almost 9 per cent increase in consumer prices means US inflation is at a 40-year-high. Biden’s $1.9 trillion coronavirus relief plan from last year, according to Republican lawmakers, was the catalyst for a spiralling surge in prices.  In his May 10th speech on the economy, the president defended the spending, retoring that republicans haven’t delivered any credible solutions and laying the blame for inflation on a string of global events.

The Current State of Employment

With the jobless rate at 3.6 per cent and America’s relative strength in the global economy, Biden said he had cause for confidence. He went on to say, however, that the American people are “really really down” after the pandemic and the surge in economic prices. It’s not surprising that Biden is pessimistic about the state of the nation’s psyche, given how dissatisfied Americans are with his job performance and the country’s course. AP-NORC Center for Public Research polling in May found that only 39% of adults in the United States were satisfied with Biden’s performance as president, down from already decreased ratings in April.

Biden told reporters at the White House that he was “not concerned” about the potential of a recession, citing a boost in spending and low unemployment as proof of the economy’s strength. Biden has been caught off guard by the current level of inflation. As a result of his efforts to restore millions of jobs, the unemployment rate has dropped to levels similar to those previous to the pandemic. The Federal Reserve raised its benchmark interest rate in an effort to slow the economy and bring inflation down to its 2% target.

“We’re boosting the economy. There are more people working today than there have been in a long time, and we’ve added another 8.6 million jobs to the total. Moreover, do you want to know something? The US president remarked, “We still have hundreds of thousands of employment openings.”

The Labor Department reported on Friday that U.S. employers added 372,000 jobs in June amid sustained labour market pressure, with the unemployment rate remaining constant at 3.6 per cent, slightly over the pre-pandemic level.

Economists highlighted, however, that if one looks beyond the labour market, other economic data provide a troubling picture of an economy that could be entering recession despite the fact that the underlying inflation rate remains quite high.

There are indications that the tightest labour market in decades is beginning to show signs of weakness as companies across numerous industries withdraw employment offers they made only a few months ago. In recent weeks, companies such as Twitter Inc., real estate agency Redfin Corp., and cryptocurrency exchange Coinbase Global Inc. have retracted offers as per Wall Street Journal. Several companies, including Netflix Inc., Peloton Interactive Inc., Carvana Co., and others, have declared that they will be cutting jobs. Tech-based companies including Meta Platforms Inc., and Uber Technologies have also warned that they will scale back hiring.

The Economic Viewpoint

Only roughly 2 out of 10 respondents believe that the United States is on the right track or that the economy is doing well, both lower than the 3 out of 10 in April who answered the same things. Additionally, nearly 70 per cent of leading academic economists polled by the Financial Times expect the U.S. economy to enter a recession next year. Once again, researchers have found that the so-called “yield inversion” has occurred, and this is a strong indicator that the economy is about to enter a recession.

According to the GDPNow model of the Federal Reserve Bank of Atlanta, which was updated recently in June, the U.S. economy shrank at an annual rate of 1.2 per cent in the second quarter. There was a 1.6 per cent drop in the first quarter GDP. Moreover, if petrol prices continue to rise and the Fed decides to raise interest rates by 75 basis points in July, the risk of a recession increases. Household spending was revised sharply down in the government’s third estimate of GDP. These new concerns were spurred by both the upward revision and a decrease in inflation-adjusted spending in May. It’s possible that the US economy may contract in the following three months as well.

Even though there is a scarcity of homes for sale, home builders are cutting back on building because mortgage rates are at their highest level since 2008. There has been a significant decline in the number of new housing constructions. As per the Institute for Supply Management (ISM), the U.S. manufacturing sector also experienced slower growth in June amid continued supply chain bottlenecks and elevated inflation, with the Purchasing Managers’ Index (PMI) standing at 53 per cent, down by 3.1 per cent from the May reading.

Many economists believe that the Fed’s more hawkish stance will cause the U.S. economy to enter a recession given the country’s high inflation and low unemployment. Adam Posen, president of the PIIE, recently stated in an interview that if the government raises the projected terminal rate of this hiking cycle from around 3 per cent to more than 4 per cent, that indicates that they may need a recession to bring down inflation.