The U.S. gross domestic product (GDP) fell for the second time this year, according to new data released by the Commerce Department. The data has intensified fears of a recession, but many experts say that it’s still too soon to make that call.
We’ll also look at the fallout of the Schumer-Manchin agreement and the mystery of President Biden’s student loan plans.
But first, get ready, because tomorrow is Beyoncé day.
Welcome to On The Money, your nightly guide to everything affecting your bills, bank account and bottom line. For The Hill, we’re Sylvan Lane, Aris Folley and Karl Evers-Hillstrom. Someone forward you this newsletter? Subscribe here.
GDP falls for second straight quarter
The U.S. economy appeared to shrink for the second consecutive quarter, according to federal data released Thursday, amid growing concern the U.S. could be slipping into a recession.
- U.S. gross domestic product (GDP) shrunk between April and June, the Commerce Department reported, marking the second-straight quarter of economic contraction.
- GDP fell at a yearly pace of 0.9 percent in the second quarter, according to the Commerce Department’s first estimate of economic growth over the previous three months.
- Put simply, the U.S. economy would shrink by nearly 1 percent if the second quarter’s pace of growth lasted for an entire year.
“The U.S. economy is struggling,” Scott Hoyt, senior director at Moody’s Analytics, wrote in a Thursday analysis.
“We now expect growth to struggle to reach potential both this year and next. However, we don’t believe the economy is in a recession,” he continued.
Behind the decline: A steep decline in business investment and a 3.1 percent surge of imports, which detract from GDP in calculations, were the two major forces behind the second quarter decline.
Gross private domestic investment — which includes sales of buildings, equipment and intellectual property — fell 13.5 percent in the second quarter after rising 5 percent during the first three months of the year. Housing construction fell 14 percent in the second quarter, and construction of other structures fell 11.7 percent over the year.
So is this a recession? Two straight quarters of negative economic growth have long been used as a rule of thumb to determine when the U.S. is in recession and is the formal threshold for a recession in other countries. But economists in the U.S. consider a broader range of data when determining if the U.S. is in recession.
- The U.S. has added 2.7 million jobs since the start of 2022, and consumer spending has continued to increase even amid high inflation.
- The unemployment rate in June was 3.6 percent, just 0.1 percentage point higher than before the pandemic began, and there were roughly two open jobs for every unemployed American since May.
But that hasn’t stopped the political jockeying. Sylvan has more here.
Read more on the GDP report:
- Biden focuses on job growth as US GDP falls for second straight quarter
- Is the US in a recession? It depends on who you ask
- Yellen: No signs of recession now despite GDP decline
LEADING THE DAY
Manchin says he is firm on closing tax loophole; Sinema absent from caucus meeting
Sen. Joe Manchin (D-W.Va.) said Thursday he is standing firm on keeping a proposal to close the so-called carried interest tax loophole in the tax and climate deal he reached this week, despite potential opposition from fellow centrist Sen. Kyrsten Sinema (D-Ariz.).
Closing the tax loophole has long been a goal of Democratic tax reformers, but it was dropped out of the House tax bill last year after Sinema indicated she opposed ending the tax break.
- This dynamic has prompted a storm of speculation about whether the Arizona senator will withhold her support for Manchin and Senate Majority Leader Charles Schumer’s (D-N.Y.) Inflation Reduction Act, which became public Wednesday.
- Sinema’s office has so far declined to comment on the legislation. She did not attend a Senate Democratic Caucus meeting Thursday to discuss the deal, according to a senator in attendance. The senator noted that Sinema often misses caucus meetings and that it was not unusual for her to miss the specific meeting Thursday.
- Some Democrats have fought to close the carried interest loophole for years, arguing it allowed wealthy money managers to effectively pay lower tax rates than working-class Americans.
Manchin on Thursday told reporters that he will insist on keeping the carried interest provision in the bill, arguing that it’s unfair for asset managers to only pay a
20 percent capital gains tax rate on income they earn from the profits of managed investments.
“I’m not prepared to lose,” Manchin said. “What we have is a good bill that’s fair with everybody. It’s a give-and-take proposition.
The Hill’s Alex Bolton has more here.
Read more on the deal:
- Manchin-Schumer deal stuns business lobby
- Manchin says he didn’t pull a fast one on GOP with Schumer deal
Biden’s student loans plan shrouded in mystery
President Biden’s next move on student loans has been a mystery, with the White House not communicating with advocates and instead keeping stakeholders in the dark while the president decides whether to forgive student loans on a large scale.
Biden has said forgiving $10,000 in debt per borrower is on the table but keeps delaying making a final decision. Now, with the student loan pause ending next month and the midterm elections just a few months away, borrowers are unclear about what to expect.
- Biden in April extended a pandemic moratorium on federal student loan payments and interest accrual until Aug. 31. Biden told reporters last week that “the end of August” is his timeline for making a decision.
- That follows more than a year of the president saying he will make a decision on student loans, amid pressure from progressives and advocates for a big portion of student loans to be forgiven, ranging from $10,000 to $50,000 to total cancellation.
The Hill’s Alex Gangitano has more here.
TEE IT UP
Senate Democrats unveil sweeping funding bills, teeing up showdown with GOP
Senate Democrats unveiled sweeping legislation outlining their plans to fund the government for the coming fiscal year, and Republicans are already drawing battle lines around their non-starters on abortion and other “poison pills.”
The mammoth package, which consists of all 12 annual appropriation bills, would provide $653 billion in nondefense discretionary spending, up 10.1 percent from the current fiscal year, as well as $850 billion in defense discretionary spending, which is 8.7 percent higher than fiscal 2022.
- The package includes ambitious plans to advance Democratic-backed priorities spanning policy areas like climate, marijuana, defense and border security. Democrats also tucked in a proposed $21 billion COVID-19 emergency supplemental funding measure.
- Republicans bristled at the legislation upon its release, with Sen. Richard Shelby (R-Ala.), vice chairman of the Senate Appropriations Committee, writing off the drafts for failing to “appropriately allocate resources to our national defense” and removing legacy riders that passed in the fiscal 2022 government funding omnibus earlier this year.
Aris has more here.
Good to Know
The Treasury Department is making moves to address the shortage of affordable housing across the U.S. — an issue that has only been exacerbated by pandemic complications, rising interest and soaring inflation.
The Treasury announced Wednesday that it’s making more money available for affordable housing loans as part of the nearly $2 trillion American Rescue Plan fiscal stimulus package passed in 2021.
Here’s what else we have our eye on:
- House Democrats will propose legislation early next month to ban lawmakers, their spouses and senior staff from trading stocks unless they put their assets in a qualified blind trust.
- The deal crafted by Manchin and Schumer would result in historic investments in combating climate change if the package is signed into law by President Biden, activists say.
- Coca-Cola Co. announced on Wednesday that it is retiring Sprite’s iconic green bottle and replacing it with a more sustainable, clear one.
That’s it for today. Thanks for reading and check out The Hill’s Finance page for the latest news and coverage. We’ll see you tomorrow.