The technical definition of recession may well get some exercise today. The Bureau of Economic Analysis reported that the economy contracted in the second quarter, with annualized GDP falling -0.9%. That’s less than the -1.6% annualized GDP change in Q1, but it’s two negative quarters in a row nonetheless:

Real gross domestic product (GDP) decreased at an annual rate of 0.9 percent in the second quarter of 2022 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 1.6 percent. …

The decrease in real GDP reflected decreases in private inventory investment, residential fixed investment, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by increases in exports and personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, increased (table 2).

The decrease in private inventory investment was led by a decrease in retail trade (mainly general merchandise stores as well as motor vehicle dealers). The decrease in residential fixed investment was led by a decrease in “other” structures (specifically brokers’ commissions). The decrease in federal government spending reflected a decrease in nondefense spending that was partly offset by an increase in defense spending. The decrease in nondefense spending reflected the sale of crude oil from the Strategic Petroleum Reserve, which results in a corresponding decrease in consumption expenditures.  Because the oil sold by the government enters private inventories, there is no direct net effect on GDP. The decrease in state and local government spending was led by a decrease in investment in structures. The decrease in nonresidential fixed investment reflected decreases in structures and equipment that were mostly offset by an increase in intellectual property products. The increase in imports reflected an increase in services (led by travel).

The increase in exports reflected increases in both goods (led by industrial supplies and materials) and services (led by travel). The increase in PCE reflected an increase in services (led by food services and accommodations as well as health care) that was partly offset by a decrease in goods (led by food and beverages).

The good news — and there’s not a lot of it — is that the unusually large trade imbalance in Q1 that drove the negative overall result has been corrected. The bad news is that Q2 also has a weird imbalance in trade, this time favoring exports (+18.0%, with imports only up 3.1%). That may have artificially created a more positive component to GDP, meaning that Q2 may actually have been worse than it appears. The WSJ pegs the difference as 1.43 points to GDP, which means that a balanced trade quarter (and we usually run negative) would have made this a -2.3% GDP report.

The rest of this report looks worse than Q1 almost across the board. Inflation-adjusted consumer spending rose only 1.0%, the worst post-pandemic reading yet, and it went significantly negative in every goods category. Only a 4.1% increase in services pulled PCEs back into positive range. Business investment plummeted to -13.5% in Q2, the first negative reading in a year and easily the worst since the pandemic.

Discretionary income looks better until you adjust for inflation (the “real” designation). Savings activity dropped, a sign of inflation erosion:

Current-dollar personal income increased $353.8 billion in the second quarter, compared with an increase of $247.2 billion in the first quarter. The increase primarily reflected increases in compensation (led by private wages and salaries), proprietors’ income (both nonfarm and farm), personal income receipts on assets, and rental income (table 8).

Disposable personal income increased $291.4 billion, or 6.6 percent, in the second quarter, in contrast to a decrease of $58.8 billion, or 1.3 percent, in the first quarter. Real disposable personal income decreased 0.5 percent, compared with a decrease of 7.8 percent. Personal saving was $968.4 billion in the second quarter, compared with $1.02 trillion in the first quarter. The personal saving rate—personal saving as a percentage of disposable personal income—was 5.2 percent in the second quarter, compared with 5.6 percent in the first quarter.

The conclusion is inescapable — the economy has contracted for the last six months, and it appears that the contraction is accelerating:

The US economy contracted in the first half of 2022

What hurt growth:
Big drop in inventories
Drop in biz investment
Drop in Real Estate spending
Drop in spending on goods (cars, furniture, etc)
Gov't spending down

What's doing well:
Consumer spending, esp. on services
Exports pic.twitter.com/Oe3lKUsvi4

— Heather Long (@byHeatherLong) July 28, 2022

Does this mean we’re in a recession? Depends on who you ask — and when:

RNC now passing along quotes of Biden's own economic advisors, as recently as last May, defining "recession" the old fashioned way: pic.twitter.com/Z0HWPrZmAr

— Philip Melanchthon Wegmann (@PhilipWegmann) July 27, 2022

CNBC’s Rick Santelli says investors aren’t going to wait around for the NBER to make this call. Two quarters of contraction is two quarters of contraction:

CNBC reacts to the U.S. economy shrinking by 0.9% in the second quarter: “OH MY GOSH!” pic.twitter.com/tnjlLBNZpZ

— RNC Research (@RNCResearch) July 28, 2022

The Wall Street Journal calls it — accurately — “the common definition of recession”:

The U.S. economy shrank for a second quarter in a row—a common definition of recession—as businesses trimmed their inventories, the housing market buckled under rising interest rates, and high inflation took steam out of consumer spending.

Gross domestic product, a broad measure of the goods and services produced across the economy, fell at an inflation and seasonally adjusted annual rate of 0.9% in the second quarter, the Commerce Department said Thursday. That marked a deterioration from the 1.6% rate of contraction recorded in the first three months of 2022.

The report indicated the economy met a commonly used definition of recession—two straight quarters of declining economic output. …

“We’re in a sentiment recession. I don’t think we’re in an actual recession. The growth slowdown has been driven by inflation and price shocks—as they fade in the near term, that should allow growth to accelerate,” said Aneta Markowska, chief financial economist at Jefferies. She expects the economy to expand 1.7% this year, measured from the fourth quarter of last year.

That’s a fairly ridiculous projection while CPI is still running at 9.1% and PPI at 11.3%. Both would have to come crashing down in the next quarter to get any real growth out of the economy if we’re waiting for “sentiment” to change. Household buying power would still take a couple of years to recover from the erosion of the past 15 months. The “sentiment” that Markowska cites is the rational reaction to bills suddenly escalating while real wages fall.

That’s not a “sentiment recession.” It’s a real recession brought about by monetary policies created to undergird massive government spending, especially in the last eighteen months, coupled with an energy policy that acts like a tax on consumers and businesses, especially small businesses and start-ups. This is a policy recession, created by the Fed and Joe Biden in particular and their inflationary actions. Only one of those is acting to correct matters; Biden’s actively trying to make it worse.

Update: This is going to be hard for the White House to spin … Update to my update: This was actually from yesterday and in reference to inflation figures from earlier in the month:

Fed Chair Powell: "We didn't expect a good reading, but this one was even worse than we expected." https://t.co/oWufOptfcQ pic.twitter.com/uuXHM8NfH7

— The Hill (@thehill) July 28, 2022

I’ve removed the tag from the headline as well. I’ll look for any Powell remarks today and write those up separately as needed.