The conference board warned this week that the US economy was cooling significantly and could spiral into recession before the end of the year.
The non-profit trade organization said Thursday that its key economic index – which tracks 10 indicators designed to measure the health of the economy – dropped 0.4% in July, compared with a 0.7% drop in June.
The gauge has now fallen for five months in a row, said Ataman Ozildirim, senior director of economics at The Conference Board, “with rising recession risks in the near term.”
“Slowing labor markets, housing construction, and the creation of new orders, along with consumer pessimism and equity market volatility, suggest that economic weakness will intensify and spread more widely throughout the US economy,” Ozildirim said. he said. “The conference board forecasts that the US economy will not expand in the third quarter and could move into a small but mild recession by the end of the year or early 2023.”
Is the United States Entering a Recession?
The index forecasts economic growth for about seven months.
Gross domestic product (GDP), the largest measure of goods and services produced in the country, also fell for two straight quarters, with the economy shrinking 1.6% from January to March and falling 0.9% in the April to June period. ,
Recession is technically defined by two consecutive quarters of negative economic growth and is characterized by high unemployment, low or negative GDP growth, falling income and slow retail sales, according to the National Bureau of Economic Research (NBER), which defines a recession. tracks the.
The decline in economic growth in the second quarter meets the criteria for a technical, but informal, recession, which requires “a significant decline in economic activity that is widespread in the economy and that lasts more than a few months.” Still, the NBER — the semi-official intermediary — can’t confirm this immediately because it usually waits up to a year to call it.
NBER has also emphasized that it relies on more data than GDP to determine whether there is a recession, such as unemployment and consumer spending, which remained strong in the first six months of the year. It also takes into account the depth of any decline in economic activity.
There are conflicting signs about the health of the economy, fueling debate over the state of the economy: the number of Americans filing for unemployment benefits has gradually increased, companies have announced layoffs or freezes, And the housing market is softening.
At the same time, unemployment fell to a nearly historically low 3.5% in July, and consumers are still spending heavily, despite high inflation.
Economists are divided about whether the economy is officially in recession, but they largely agree that it will be nearly impossible to avoid a recession in the near future. federal Reserve The consumer tries to bring inflation under control by cooling the demand. Policymakers approved a second, 75-basis-point interest rate hike in July — three times the normal size — and indicated that another super-sized rate hike is on the table in September based on upcoming economic data.
A rise in interest rates creates higher consumer and business loan rates, which slow the economy down by forcing employers to cut spending. Mortgage rates have nearly doubled compared to a year ago, while some credit card issuers have raised their rates by as much as 20%.
Fed Chairman Jerome Powell has said tackling inflation is the central bank’s No. 1 priority, even if it means taking the risk of a recession – although he insisted last month that he is not confident America is currently going through a recession.
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“We think it’s important to slow down growth,” Powell said in July. “We really think we need a period of growth below capacity to create some slack so the supply side can catch up.”