US GDP overview, Q2 2022

Well this is a weird recession, and a very mild one at that, but yes, definitely a recession at this point.

When economists like myself look at recession data we generally look at the whole picture. We want to know not just “is the economy in a recession” but “why is the economy in recession”.

There are 4 main parts to GDP (using the expenditure method, which is what we are going to use to start this analysis), personal consumption, gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment.

This is almost enough to do a full analysis, but we also need information on our prices which we can get from table 4, as well as the consumer price index.

First of all, if we look at the 2020 Trump COVID recession, we see the economy declined across everything except government expenditure, which went up by 3.9% in that quarter (which is countercyclical policy, which is good). Your classic recession. We see that we also had deflation in Q2 2022 which means that this is a classic demand-based recession where demand declines, causing a decline in both prices and GDP. The demand curve slid to the left, as we say in the biz. CPI data backs this up.

This is your classic bread and butter demand-based recession you will learn from your econ 101 classes.

The recession we are seeing in 2022 is a wholly different animal. GDP declined by 1.6% and 0.6% in Q1 and Q2 respectively. Unlike the 2020 recession (which also lasted two quarters) this recession is both significantly milder, and not seen in all categories.

  • Personal consumption – grew by over 1% in both quarters
    • Goods – very small declines, under 1% in Q1, over 2% in Q2
    • Services – grew by over 3% in both quarters
  • Private investment – grew in Q1, declined by over 13% in Q2
    • Fixed investment – grew in Q1, declined by under 1% in Q2
    • Private inventories – nonfarm inventories declined by over 1% in Q2
      • Fixed investment – grew in Q1, declined in Q2 (this is your recession)
        • Nonresidential – grew in Q1, stagnated in Q2
        • Residential – 0.4% in Q1, shrunk by -16% in Q2 (this is where the recession is!!!)
  • Net exports
    • Exports – slight decline in Q1, grew in Q2
    • Imports – declined by over 2% in Q1, declined in Q2 under 1%
  • Government
    • Federal – large declines in both quarters, -6% in Q1, -3.9% in Q2, mostly non-defense
    • State and local – very small declines in both quarters

We can also tell if they are supply or demand.

  • Personal consumption
    • goods – inflation, so we had stagflation (leftward shift of supply) in the goods category.
    • services  – inflation, so we have a rightward shift of demand.
  • Private investment
    • Fixed – inflation, so this is stagflation (leftward shift of supply)
      • Nonresidential – inflation in Q1 is a rightward shift of demand. Q2 is an upward shift of both supply and demand
      • Residential – inflation over 10% in both quarters, we have massive stagflation in the housing market.

That’s the story. Americans are increasing services expenditure and reducing expenditures on goods. Private investment, particularly in housing fell off a cliff. At the same time that private investment fell off a cliff the Federal government cut nondefense spending by 10% which reverberated through the economy and caused a recession.

Hopefully, we saw a recovery in housing supply in Q3. We will find out in a month.

Our stagnating housing supply in this country is choking our economy and causing a recession. We need better denser housing to avoid recessions.

I will now refer to this as the NIMBY Recession.


cpi q2 2022 – permanent link to the latest CPI report

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