US Q2 GDP drops 0.9%
By Alexander Bueso
Date: Thursday 28 Jul 2022
(Sharecast News) - The American economy recorded a second straight contraction over the three months to June, fitting the often used technical definition of a recession.
But some economists agreed with the country's central bank, arguing that the decline in activity was not broad-based, which for economists was a pre-requisite for calling a recession, and were predicting a rebound in GDP over the back half of 2022.
According to the Department of Commerce, in seasonally adjusted terms US gross domestic product shrank at a quarterly annualised pace of 0.9% over the three months to June, falling short of projections for growth of 0.5%.
Part of the reason for that shortfall was a larger than expected drag from companies running down their stockpiles of goods, subtracting two percentage points from GDP growth.
According to Ian Shepherdson at Pantheon Macroeconomics, many economists had failed to factor in the scale of the hit from rising commodity prices, which led to a "hefty" drop through the inventory valuation adjustment.
Public consumption was another drag, with the 1.9% decline "impossible to square with the monthly data".
Net foreign trade meanwhile added 1.4 percentage points to the rate of GDP growth and a further positive contribution was anticipated for the third quarter.
Household consumption on the other hand came in slightly weaker than expected at up by 1.0% (consensus: 1.2%).
"[Final sales to domestic purchasers] could easily fall a bit in Q3, but headline GDP probably will rebound strongly," Shepherdson said.
"We expect the Fed to take more notice of the indicators of final demand, which is why we expect a rate hike of only 25bp or 50bp in September. Q3 is the period of maximum risk for final demand; by Q4, we expect rising real incomes to support significantly stronger consumption."
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