The third and final estimate for U.S. GDP in the second quarter was released on Thursday morning, showing that the economy with -0.6 negative growth:
The “third” estimate of GDP released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the decrease in real GDP was also 0.6 percent. The update primarily reflected an upward revision to consumer spending that was offset by a downward revision to exports. Imports, which are a subtraction in the calculation of GDP, were revised down.
This week's report matches the second estimate for Q2 GDP released in August of -0.6, ending the quarter slightly better than the first Q2 estimate released in July that showed a -0.9 percent contraction in the U.S. economy.
Thursday's final report for Q2 GDP showing negative growth — following the reported -1.6 percent contraction in Q1 — means that the definition of a recession — two consecutive quarters of negative GDP growth — has been confirmed, again.
While the Biden administration insists that the U.S. is not in a recession by pointing to misleading indicators — such as the labor market — that are expected to buckle under the pressure of inflation and Federal Reserve interest rate hikes, there's no sign that relief for Americans and the larger economy are coming soon.
The Fed continues raising its key interest rate target, aggressively but still not strongly enough, in attempts to bring inflation that's running at more than eight percent down to just two percent. The Fed's consecutive 75 basis point increases have failed to force down inflation so far, meaning more (and potentially bigger) increases lie ahead before the end of 2022.
Those increases, aimed at slowing the economy to a crawl to reduce inflation, are sure to make things worse — as Fed Chairman Jerome Powell himself has said. "Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance," Powell said last month, actions that will "bring some pain to households and businesses."
Meanwhile, the final Q2 GDP report also brought updated numbers for PCE inflation — the Fed's preferred indicator of inflation — and surprise, surprise, it showed that prices continued to rise, albeit in the rearview mirror:
The price index for gross domestic purchases increased 8.5 percent in the second quarter (table 4), an upward revision of 0.1 percentage point from the previous estimate. The personal consumption expenditures (PCE) price index increased 7.3 percent, an upward revision of 0.2 percentage point. Excluding food and energy, the PCE price index increased 4.7 percent, an upward revision of 0.3 percentage point.
Fresh PCE data will be released Friday showing a more recent picture of inflation, but the numbers released Thursday show that the Fed's previous interest rate hikes did not move the inflation needle down in the second quarter while Americans continued to suffer from the decrease in real wages that rising prices cause.
But don't count on Joe Biden to understand the plight of Americans. He maintains that the U.S. economy — as it shrinks — is "looking good" and celebrates at the White House as the stock market tumbles, inflation rages, and the Fed prepares to send interest rates even higher.
Eyes turn now to the third quarter and what will be revealed in the first (advance) Q3 estimate of GDP released on October 27.