UF expert on recessions explains the GDP decline
GAINESVILLE, Fla. (WCJB) - U.S. Gross Domestic Product (GDP) shrank for the second quarter in a row marking the beginning of a recession, however, an expert at the University of Florida explains the economic situation is mixed.
The U.S. economy shrank from April through June for a second straight quarter, contracting at a 0.9% annual according to numbers released by the commerce department on Thursday. That follows the previous quarter’s 1.6% annual drop.
“We have good news, we have bad news, all at the same time,” said Professor Gustavo Cortes, who has a doctorate in economics. “The bad news for example... the GDP numbers were released. We had another decline this time close to one percentage point. At the same time, you also have good news on the labor market side.”
Cortes said the GDP is not the only metric that should be used when discussing the economy. He pointed to the National Bureau of Economic Research which considers a wide number of factors to define a recession, including the record low unemployment rate across the United States.
In Florida, the unemployment rate for June was 2.8%, nearly as low as the record lows before the pandemic.
“I don’t see the U.S. economy going to a full fledged recession, at least by the usual definitions any time soon, because of the labor market,” Cortes said.
Much of the recent economic slowdown Cortes attributes to the Federal Reserve’s decision to raise interest rates in an effort to combat high inflation. On Wednesday, the Federal Reserve raised its benchmark interest rate by three-quarters of a point for a second straight time.
“It needs to do that. It has been facing a lot of criticism since last year that it should have acted before we had an inflation of 9% right now. So, we are almost getting to double digits which means the Fed had to do it, despite the fears of a recession.”
In the last quarter, consumer spending slowed as Americans bought fewer goods, business investments fell, and inventories were restocked more slowly. The decline is linked to higher borrowing rates due to rising interest rates.
“We have all the concerns with the Federal Reserve’s decision to increase the interest rates which obviously impacts a lot of sectors that depend on credit like housing, and durable goods like cars. There are many mixed signals now on in terms of what’s going to be the impact on the real economy,” explained Cortes.
Cortes recommends anyone planning to invest in the near future insure that those investments are protected against inflation. He doesn’t recommend buying a home with mortgage rates increasing. He says workers should take advantage of the labor market to find a good job while it remains hot.
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