The US economy shrank for the second straight quarter from April to June, shrinking at a 0.9% annual pace and raising fears that the country could be approaching a recession
The US economy shrank for the second straight quarter from April to June, shrinking at a 0.9% annual pace and raising fears that the country could be approaching a recession
The US economy shrank for the second straight quarter from April to June, contracting at a 0.9% annual pace and raising fears that the nation could be approaching a recession.
The Commerce Department on Thursday reported a fall in GDP – the economy’s biggest gauge – after a 1.6% annual decline from January to March. Successive quarters of falling GDP is an unofficial, though not definitive, indicator of recession.
The report comes at a critical time. Consumers and businesses are struggling under the burden of penalizing inflation and high borrowing costs. On Wednesday, the Federal Reserve raised its benchmark interest rate by three-quarters of a single point for the second time in a row, overcoming the worst inflation outbreak in four decades.
The Fed is hoping to achieve a notoriously difficult “soft landing”: an economic downturn that manages to rocket prices without triggering a recession.
Fed Chair Jerome Powell and several economists have said the economy looks somewhat weak, suspecting it is in recession. Many of them, in particular, point to a still-strong labor market, with 11 million job openings and an unusually low 3.6% unemployment rate, to suggest that a recession, if any, will occur. So there is still a way out.
On Thursday, the first of three government estimates of GDP for the April-June quarter, the economy’s 5.7% growth achieved last year, is much weaker than it was. It was the fastest calendar-year expansion since 1984, showing how strongly the economy bounced back from the brief but brutal pandemic recession of 2020.
But since then, the combination of rising prices and higher borrowing costs has taken a toll. The Labor Department’s Consumer Price Index rose 9.1% in June from a year earlier, a pace not matched since 1981. And despite widespread wage increases, prices are rising faster than wages. In June, average hourly earnings, after adjusting for inflation, declined by 3.6% from a year earlier, the 15th consecutive year-on-year decline.
Rising inflation and fear of recession have eroded consumer confidence and raised public concern about the economy, sending disappointingly mixed signals. And with November’s midterm elections looming, Americans’ discontent has eroded President Joe Biden’s public approval ratings and increased the likelihood that Democrats would lose control of the House and Senate.
Consumer spending is still rising. But Americans are losing confidence: Six months from now, their assessment of economic conditions has fallen to its lowest level since 2013, according to the Conference Board, a research group.
Recession risks are rising as the Fed’s policymakers campaign for a rate hike that will likely extend into 2023. The Fed’s hikes have already led to higher rates on credit cards and auto loans and more than double the average rate at 30-. Fixed mortgage years in the previous year, to 5.5. Home sales, which are particularly sensitive to changes in interest rates, have fallen.
Even as the economy recorded negative GDP for the second consecutive quarter, many economists do not consider it to constitute a recession. The definition of recession that is most widely accepted is set by the National Bureau of Economic Research, a group of economists whose Business Cycle Dating Committee defines a recession as “a significant drop in economic activity which The economy is spread out and lasts longer than a few months.”
The committee assesses a number of factors before publicly declaring the death of economic expansion and the birth of a recession – and it often does very well after the fact.
This week, the nation’s largest retailer Walmart downgraded its profit outlook, saying higher gas and food prices are forcing shoppers to spend less on a number of discretionary items such as new clothing.
Manufacturing is also sluggish. America’s factories have enjoyed 25 consecutive months of expansion, according to the Institute for Supply Management’s Manufacturing Index, although supply chain constraints have made it difficult for factories to fill orders.
But now, the factory boom is showing signs of tension. The ISM index fell last month to its lowest level in two years. New orders declined. Factory hiring declined for the second straight month.