What's going on?
Data out on Thursday showed that the US economy has now officially entered a technical recession.
What does this mean?
Sure, the US economy shrank in the first quarter of this year, but economists had been expecting it to start growing again last quarter – if only marginally. Those expectations have swiftly been dashed: the US economy shrank by an annualized 0.9% last quarter. There were drop-offs in all sorts of areas, from personal consumption – a key measure of consumer spending – to company inventories. Business investment, housing investment, and government spending slowed down too, highlighting the impact of rising inflation and interest rates on the economy. So after months of speculation, it’s happened: the US is in a technical recession.
Why should I care?
The bigger picture: A lesson in semantics.
The word “technical” is important here. A country is in a technical recession when its economy shrinks for two quarters in a row, but the US can – and does – choose to ignore that definition. Instead, it waits until the National Bureau of Economic Research has given its opinion, which the household name isn’t due to do for at least a few months. That’s led some economists to believe that the Federal Reserve will only rethink growth-damaging rate hikes if one of two things happen: the jobs market falters, or inflation reverses course.
Zooming out: Europe’s next.
We’ll also find out how Europe’s economy is doing soon, but it’s not looking good: data out on Thursday showed that consumer confidence in the region dropped to its lowest on record this month (tweet this). That probably has something to do with the spreading energy crisis, not to mention the European Central Bank’s decision to hike rates for the first time in a decade. Those factors certainly have Goldman Sachs feeling edgy: the investment bank said this week that it thinks the European economy will shrink 0.1% and 0.2% this quarter and next, plunging the region into its own technical recession.