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United States GDP to Fall by 0.6% in Q2 2022

The latest United States GDP estimate for the second quarter of this year has revealed that the economy contracted at an annual rate of 0.6%, despite the forecasted downturn, it was better news that the 0.9% decrease that was predicted last month.

In the first quarter of 2022, the US economy shrank by 1.6% according to the figures released by the Bureau of Economic Analysis.

As the data marked the second straight negative quarter, this is a measurement that is typically associated with a country entering a recession.

Yet officially in the United States, the National Bureau of Economic Research (NBER), which is a non-for-profit group of economists, makes the call when the world’s most powerful economy is in a downturn. They have not yet declared a recession.

The latest forecast for the second quarter has arrived from a more complete source data than what was available for last month’s assessment, the Bureau of Economic Analysis said in its statement.

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Falls in Spending Behind Negative GDP 

Overall, the decrease in GDP reflected a fall in private inventory investment, led by a decrease in retail trade.

However, a rise in these investments were found as part of the revised 0.3% upward difference between August and last month’s estimations.

The same pattern was found in state and local government spending.

While federal spending declined mainly due to a reduction in non-defense spending, that was offset by an uptick in defense spending.

One of the main drivers behind the fall in non-defense spending, was the sale of crude oil from the strategic petroleum reserve, as this results in a decline in consumption expenditures.

This is because any oil which is sold by the government then enters private inventories, and therefore there is no direct effect on GDP.

More positively there has been an upturn in the level of exports from the United States, as there was more demand for industrial services, material and services spearheaded by the travel industry.

An increase in consumer spending also offset the main reasons of why the overall GDP forecast was negative, despite the current cost of living crises.

More dollars were spent on services, especially on food services and accommodations, alongside “other” services.

Although this was slightly countered by a drop in goods spending, mainly due to a lower outlay on food and beverages

Comparing the data for the first two quarters for this year, there was a smaller decrease in the second quarter because of the recovery in exports allied with less of a fall in federal spending.

Yet this was partly offset by a more significant decline in private inventory investment, a deceleration of imports and downturns in non-residential fixed investment and residential fixed investment.

In other data that was released today, gross domestic income increased by 1.4% in contrast to an increase of 1.8% in Q1 2022.

Corporate profits surged by $175.2 billion in the second quarter, a stark contrast to the decrease of $63.8 billion in the first quarter.

Market Reaction to US Preliminary GDP 

Since the announcement of the latest data the US Dollar has today declined against the British Pound by a slender margin of 0.11%, similarly there has been a slight decrease compared to the Japanese Yen, but the EUR/USD currency pair has remained stable.

The major United States stock markets have all reacted well to the GDP news, with the Nasdaq 100 Index increasing by 0.67% after its opening this morning. The benchmark S&P 500 Index has also risen by a similar margin of 0.69%.

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