The US economy shrank from April to June for the second straight quarter, shrinking at an annual rate of 0.9% and raising fears that the nation was heading for a recession.
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The US economy shrank from April to June for the second straight quarter, shrinking at an annual rate of 0.9% and raising fears that the nation was heading for a recession.
The fall in gross domestic product, the broadest gauge of the economy, followed a 1.6% annual drop from January to March.
Consecutive quarters of falling GDP are an informal, though not definitive, indicator of a recession
The report comes at a critical time as consumers and businesses have been struggling under the weight of punishing inflation and higher borrowing costs.
The decline the Commerce Department reported Thursday in gross domestic product, the broadest indicator of the economy, followed a 1.6 percent annual decline from January to March. Consecutive quarters of falling GDP are an informal, though not definitive, indicator of a recession.
The report comes at a critical time. Consumers and businesses have been struggling under the weight of punishing inflation and higher borrowing costs. On Wednesday, the Federal Reserve raised its benchmark interest rate by three-quarters of a point for the second consecutive time in its push to conquer the worst outbreak of inflation in four decades.
The Fed hopes to achieve a notoriously difficult “soft landing” — an economic slowdown that manages to curb skyrocketing prices without triggering a recession.
Fed Chairman Jerome Powell and many economists have said that while the economy is weakening, they doubt it is in recession. Many of them point in particular to a still-robust labor market, with 11 million job openings and an unusually low 3.6% unemployment rate, to suggest that a recession, if it occurs, is still far.
Thursday’s first of three government GDP estimates for the April-June quarter marks a sharp weakening from the 5.7% growth the economy achieved last year. This was the fastest calendar-year expansion since 1984, reflecting how strongly the economy rebounded from the brief but brutal pandemic recession of 2020.
But since then, the combination of rising prices and higher borrowing costs has taken its toll. The Labor Department’s consumer price index soared 9.1% in June from a year earlier, a pace not matched since 1981. And despite widespread wage gains, prices are rising faster than wages. In June, average hourly earnings, after adjusting for inflation, fell 3.6% from a year earlier, the 15th consecutive year-over-year decline.
Rising inflation and fears of a recession have eroded consumer confidence and stoked public anxiety about the economy, which is sending frustratingly mixed signals. And with November’s midterm elections approaching, Americans’ discontent has lowered President Joe Biden’s public approval ratings and increased the likelihood that Democrats will lose control of the House and Senate.
In a statement on Thursday, Biden insisted that the US economy is “on the right track”.
“Coming off of last year’s historic economic growth, and recovering all the private sector jobs lost during the pandemic crisis, it’s no surprise that the economy is slowing as the Federal Reserve acts to reduce inflation,” he said. “But even as we face historic global challenges, we are on the right track and will come through this transition stronger and more confident. Our job market remains historically strong, with unemployment at 3.6% and more than 1 million of jobs created in the second. just one quarter. Consumer spending continues to grow. Earlier this week, I met with the chairman of Korea’s SK Group, just one of the companies that invested more than 200,000 billions of dollars in American manufacturing since I took office, driving a historic recovery in American manufacturing.
“My economic plan is focused on bringing down inflation, without renouncing all the economic gains we have achieved,” continued the president. “Congress has a historic opportunity to do just that by promptly passing the CHIPS and Science and Inflation Reduction Act.”
Consumer spending continues to grow. But Americans are losing confidence: Their assessment of economic conditions six months from now has hit its lowest point since 2013, according to the Conference Board, a research group.
Recession risks have been growing as Fed policymakers have pursued a campaign of rate hikes that will likely extend into 2023. The Fed’s hikes have already led to higher rates on credit cards and car loans and to double the average rate on a 30- year fixed mortgage in the last year, to 5.5. Home sales, which are particularly sensitive to changes in interest rates, have fallen.
Although the economy posted a second consecutive quarter of negative GDP, many economists do not consider this to constitute a recession. The most widely accepted definition of a recession is that determined by the National Bureau of Economic Research, a group of economists The Business Cycle Quotations Committee defines a recession as “a significant decline in economic activity that extends throughout the economy and lasts longer. more than a few months.”
The committee evaluates a number of factors before publicly declaring the death of an economic expansion and the birth of a recession, often long after the fact.
Walmart, the nation’s largest retailer, cut its profit outlook this week, saying higher gas and food prices were forcing shoppers to spend less on many discretionary items, such as new clothes.
Manufacturing is also slowing. US factories have enjoyed 25 straight months of expansion, according to the Institute for Supply Management’s manufacturing index, even as supply chain bottlenecks have made it difficult for factories to fill orders .
But now, the factory boom is showing signs of strain. The ISM index fell last month to its lowest level in two years. New orders declined. Factory hiring fell for the second consecutive month.
