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US economy crashes once more, Fuelling Recession Fears
Gross domestic product, a wide-ranging measure of economic activity, fell by 0.9% on an annualized basis from April through June. That decline marks a key symbolic threshold for the most commonly used — albeit unofficial — definition of a recession as two consecutive quarters of negative economic growth.
The hotly anticipated data release has taken on outsized significance as investors, policymakers and ordinary Americans seek some measure of clarity in the current muddled economic environment.
Although Thursday’s initial estimate marked a sharp drop from the 6.7% expansion the economy underwent in the second quarter of 2021, the White House has been adamant that the world’s largest economy, despite being buffeted by decades-high inflation and a cascade of supply shocks, remains fundamentally sound.
The administration even took the unusual step of publishing an explainer of sorts, maintaining that two consecutive quarters of economic contraction does not, in and of itself, constitute a recession. The White House posted a blog entry last week saying that in addition to GDP, data pertaining to the labor market, corporate and personal spending, production, and incomes all go into the official determination of a recession.
The nonprofit National Bureau of Economic Research is the official arbiter of recessions, and it is unlikely to render a verdict any time soon. The group’s Business Cycle Dating Committee typically weighs a plethora of statistics over a period of months before making a determination.
Economists say the biggest reason it would be premature to call a recession based on Thursday’s numbers is that the data can and probably will change. Subsequent revisions to first-quarter GDP figures, for instance, changed from an initial drop of 1.4% to 1.6%, and Thursday’s numbers are just the first of three estimates.
Adjustments are the norm rather than the exception, since the Commerce Department repeatedly refines its calculations as new information becomes available. About a third of initial GDP releases rely on statistical extrapolations and assumptions in the absence of hard data, according to the Federal Reserve Bank of San Francisco.
“These are typically single points in time, snapshots. It’s almost like looking at a balance sheet versus an income statement over a quarter,” said Eric Freedman, chief investment officer at US Bank Wealth Management.
“New information can emerge,” he said, and when it does, those variables change the outcome.
Sometimes, the differences between estimates are significant. Revisions to GDP in the fourth quarter of 2008, for example, revealed that economic activity actually plunged by an annualized -8.4%, indicating a much deeper recession than the initial estimate of -3.8% suggested.
Right now, the biggest smudge on the lens preventing economists from getting a clear picture is a buildup of inventories and a corresponding imbalance in the country’s usual trade flows.
“What you’re starting to see and hear a lot about right now is what’s happening with inventories… Inventories are an issue, both in terms of the mix of inventory retailers are holding as well as the amount,” Freedman said.
A rush to load up on goods during the previous two quarters was a miscalculation for companies like big-box stores. Walmart and Target have both told investors they expect to cut prices to move products. But from a macroeconomic perspective, some experts think those missteps imply that the economy in the first quarter was not as anemic as the drop in GDP might otherwise imply.
Anna Rathbun, chief investment officer at CBIZ Investment Advisory Services, suggested that the 1.6% contraction in first-quarter GDP was artificially low because businesses started stockpiling inventory in the final quarter of last year. This pulled forward economic activity that otherwise would have taken place in the early months of this year, she said.
“The fourth quarter, to me, was bloated a little bit,” Rathbun said. “Everyone was just hoarding things.”
In addition, when companies import more and export less, that dynamic weighs on GDP, said Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics.
“It’s the value of production within the physical borders of the United States, so therefore if you have, hypothetically, exports that are flat and higher imports, then your trade deficit is rising. In that sense, a rising trade deficit subtracts from GDP,” he said, particularly when combined with wild swings in prices.
“When you have highly fluctuating commodity prices, and especially in periods of high inflation in general, then it can be misleading and, in my opinion, paint an overly negative view of where the economy is,” Kirkegaard said. “We have to be careful with saying the GDP number is the absolutely valid metric for economic well-being in the country.”
Federal Reserve Chairman Jerome Powell on Wednesday reiterated the importance of considering various key economic measures as the central bank determines future rate moves. However, Powell said the first read of a GDP report should be taken “with a grain of salt
China has revamped its tax refund policy for foreign tourists, shifting from a refund-upon-departure model to a more convenient refund-upon-purchase system, according to the State Taxation Administration (STA).
The STA announced on Tuesday that under the new system, foreign visitors can now claim Value Added Tax (VAT) rebates instantly at designated tax-free stores. This change allows tourists to use their refunded amount immediately for additional shopping, enhancing their overall experience in China.
Previously, VAT rebates could only be withdrawn upon departure, but with the new policy, tourists will be able to access their refunds in real-time during their stay. The policy, which was initially tested in cities like Shanghai, Beijing, and Guangdong, has now passed all operational requirements and will be rolled out nationwide.
The STA emphasized its dedication to improving policy guidance and simplifying refund procedures to better serve international visitors.
Li Xuhong, Vice-President and Professor at the Beijing National Accounting Institute, welcomed the change, stating that the nationwide implementation would raise China’s tourism service standards. “It will foster a friendly, efficient, and convenient tourism environment,” Xuhong added.
Rep. Jaafaru Yakubu, Chairman of the House of Representatives Committee on China-Nigeria Parliamentary Relations, has reiterated Nigeria’s firm commitment to the One-China Policy, following recent comments by Taiwan’s Trade Mission Head in Nigeria, Andy Yih-Ping Liu.
Speaking in Abuja on Tuesday, Yakubu firmly declared that Nigeria continues to recognize Taiwan as an integral part of the People’s Republic of China. He rejected Liu’s claim that Taiwan was not part of China, labelling it as “propaganda” aimed at undermining the strong diplomatic ties between Nigeria and China.
“For the record, United Nations General Assembly Resolution 2758, adopted in 1971, recognised the People’s Republic of China as the sole legitimate representative of all of China, including Taiwan,” Yakubu stated. “The One-China Policy remains the cornerstone of China-Nigeria relations.”
He emphasized that since Nigeria and China established diplomatic ties in 1971, the country has consistently upheld this principle. “Efforts by Taiwan’s trade office to challenge this stance are futile and will not succeed,” Yakubu added.
Yakubu criticized Liu’s comments as an attempt to draw Nigeria into China’s internal matters, accusing the Taiwanese official of deliberately sowing discord and provoking a diplomatic rift. “Nigeria’s relationship with China is built on mutual respect and non-interference in each other’s political matters,” he said.
In response to Liu’s claim that China acted as a bully, Yakubu pointed to the positive trajectory of Nigeria-China relations. “Contrary to these baseless assertions, Nigeria has enjoyed a mutually beneficial partnership with China, yielding tangible results for both nations. Since 1971, our ties have grown significantly.”
He highlighted the strategic nature of the partnership, referencing the elevation of the relationship to a Comprehensive Strategic Partnership during the 2024 FOCAC Summit in Beijing. “Today, Nigeria stands as China’s second-largest trading partner in Africa, with bilateral trade surpassing 20 billion dollars,” Yakubu noted.
Furthermore, Yakubu praised China’s role in Nigeria’s infrastructural development, with investments in sectors such as rail networks, roads, ports, power stations, and water treatment facilities.
Vice President Kashim Shettima has cautioned Nigerian media practitioners against the growing tendency to romanticise serious national issues, describing the trend as a dangerous departure from the media’s constitutional duty of promoting truth and accountability.
Represented by his Special Adviser on Special Duties, Modibbo Umar, the Vice President issued the warning on Tuesday while delivering a speech at the 17th LEADERSHIP Conference and Awards held at the Old Banquet Hall of the State House, Abuja.
“We must resist the temptation to romanticise serious national issues or frame them in ways that distort public understanding,” Shettima said. “Doing so only weakens the fabric of our democracy and derails our collective efforts at nation-building.”
The Vice President’s remarks came as stakeholders in governance, business, and civil society gathered to reflect on the theme of the event, “Challenges and Opportunities in Nigeria’s Fiscal Federalism.” The conference provided a platform for thoughtful engagement on some of the country’s most pressing issues, with a focus on the responsibilities of leadership at all levels.
Shettima also used the occasion to commend LEADERSHIP Newspapers Group for its consistent contributions to national discourse and its commitment to celebrating excellence in leadership.
“I commend LEADERSHIP Newspaper for the vision to convene this vital discourse and for shining the light on those who have chosen to lead with courage and competence. May we never tire of striving for a better Nigeria,” he said.
The annual LEADERSHIP Conference and Awards continues to be a major event that brings together influential voices to deliberate on national progress and honour individuals and institutions making meaningful impact in society.
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