US Plunges into Recession While US Oil Giants Reap Windfall Profits

The US economy has shrunk for two consecutive quarters, meeting one of the criteria for a recession, official figures released on Thursday suggest.

Real gross domestic product (GDP) decreased at an annual rate of 0.9% in the second quarter of 2022, following a decline of 1.6% in the first quarter, according to a release published on the US government’s website. It notes that the data for the second quarter represents an advance estimate, and more complete data will be released in August.

The drop in GDP reflects decreases in government spending, retail trade, and other sectors, the release states.

A recession is a prolonged downturn in economic activity, most often defined as two consecutive quarters of decline in a country’s GDP. It usually produces declines in economic output, consumer demand, and leads to unemployment.

“It’s no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation,” US President Joe Biden said on Thursday, commenting on the figures.

“But even as we face historic global challenges, we are on the right path,” he added.

This comes after the US Federal Reserve delivered another 75 basis-point interest-rate hike on Wednesday and suggested more may be necessary in the coming months. 

“We’re not trying to have a recession – and we don’t think we have to,” said chair of the Federal Reserve Jerome Powell.

Inflation in the US rose to 9.1% last month, the fastest rate since 1981, driven mainly by higher prices for fuel and food.

US oil giants reap windfall profits

High gas prices are shown in Los Angeles, California, June 16, 2022. ©  AP / Jae C. Hong

Some firms have seen boosts in quarterly profits exceeding 200% compared to last year.

US oil firms ExxonMobil and Chevron have reported record profits, reaping tens of billions of dollars due to a major surge in prices fueled by the conflict in Eastern Europe and a months-long Western sanctions spree on Russia, a major global exporter. 

Issuing their quarterly earnings reports on Friday, the petro-giants have both come out ahead, with Exxon seeing a 273% jump in profits compared to the second quarter of 2021, and 247% for Chevron

Exxon reported $17.6 billion in profits, nearly double what it brought in for the first quarter of 2022, while Chevron placed the number at $11.4 billion, a 74% jump over Q1.

As noted by CNN, Exxon’s net income for the quarter meant it earned some $2,245 every second of the 92-day Q2 period, pulling in hundreds of thousands of dollars in the time it takes to fill up a car at the pump. Chevron, meanwhile, earned $1,462 per second throughout the same quarter.

The optimistic earnings reports gave a significant boost to both firms’ share prices, with Chevron rallying 8% and Exxon 4% during the morning trading hours on Friday.

The record profits come amid a spike in oil and gas prices, with natural gas nearly tripling in cost since last summer, according to CNBC. Though gasoline prices in the US have begun to fall from their historic high reached in June – when they exceeded $5 per gallon – they remain far above the second quarter of 2021, which averaged out to just over $3 per gallon, per US government statistics.

The soaring prices are explained in part by a US-led effort to boycott, and even outright embargo, Russian energy, which has long made up a large share of imports for several European nations. While sanctions have helped to curb some Russian oil sales, a senior US energy official acknowledged in June that Russian fossil fuel revenues may be greater now than they were before Moscow’s attack on Ukraine in late February, which triggered the flood of Western penalties.

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