The downturn came as skyrocketing inflation has negatively impacted consumer spending, and interest rate hikes have resulted in a decline in housing demand and business investments.
Overall, consumer spending increased by 1% in Q2, down from the last ten-year average of 2.3%. On the other hand, business investment fell at a rate of 3.9%, the biggest decline since the early days of the ongoing pandemic.
The decline in U.S. GDP has renewed debates over whether the country is already in recession. Generally speaking, in many countries, two consecutive quarterly GDP declines are considered a recession. In the U.S., however, several more data points are considered by the National Bureau of Economic Research, a body comprised of academics that determine whether the country is in recession or not.
“We think it’s necessary to have growth slow down,” said Fed Chair Jerome Powell at a news conference after the Fed increased interest rates by 75 basis points. “We actually think we need a period of growth below potential in order to create some slack so that the supply side can catch up. We also think that there will be, in all likelihood, some softening in labor market conditions.”
The economic downturn is seemingly have a direct impact on retailers’ bottom lines. For example, Target and Walmart have cut their profit forecasts, while Apple and Microsoft are slowing their hiring.
It is worth noting that the hiring in the broader U.S. market remains strong, and Americans are continuing to fetch higher salaries and raises.
