US economy shrank 0.9 per cent in second quarter further stoking recession fears

The US economy shrank 0.9% during the second quarter of the year, further fueling fears that the country is slipping into recession.

In gross domestic product data released Thursday morning, the Bureau of Economic Analysis, part of the Commerce Department, reported a second consecutive quarterly contraction in the economy.

Back-to-back negative quarters are an informal definition of a recession, but most economists point to a still robust labor market, with 11 million job openings and an extraordinarily low unemployment rate of 3.6%. They argue that a recession, if it occurs, is still a long way off.

The report comes just a day after the US Federal Reserve raised its benchmark interest rate by 0.75% for the second time in a row as it continues efforts to overcome the worst rise in inflation in four decades.

With the June consumer price index up 9.1 percent from a year earlier, the Fed is looking for a notoriously difficult “soft landing” — an economic slowdown that manages to contain the price spike without triggering a recession.

The strength of the US labor market, Federal Reserve Chairman Jerome Powell told a news conference on Wednesday, “makes you question the GDP data.”

Asked if he thought the US was in recession, Powell said he didn’t think it was, citing the “remarkably strong” job market and adding that “it doesn’t make sense” that the country is in recession right now.

Mr. Powell also correctly noted that GDP data is often revised at a later date. In its Thursday morning press release, the BEA noted that the GDP estimate was based on source data that is incomplete or subject to source agency review and that the second estimate for the quarter will be released on 25 May. August.

Ahead of today’s data release, analysts polled by data firm FactSet estimated that the country’s gross domestic product – the broadest measure of economic output – had a lukewarm 0.8% annual gain between early April and late April. of June. . Others believed that a more anemic level of 0.2 percent was possible.

The Atlanta Federal Reserve’s current GDP growth estimate, based on available economic data, signaled that a 1.2% decline in the second quarter was in the cards.

Today’s data, while still marking a drop in economic activity, is an improvement from the 1.6% drop in the January-March quarter.

Still, this weak quarterly growth represents a drastic weakening from the 5.7% growth the economy achieved last year. This was the fastest calendar year expansion since 1984, reflecting how vigorously the economy has recovered from the brief but brutal 2020 pandemic recession.

However, the first quarter numbers weren’t as alarming as the headlines suggested, as a wider trade deficit caused by rising demand for foreign goods knocked 3.2% off overall growth.

Digging deeper into the details of Thursday’s release, the fall in real GDP in the second quarter reflected reductions in inventory investment, housing investment, federal government spending, state and local government spending and business investment.

However, exports and consumer spending increased. Imports, which had such an impact on the first quarter numbers, continued to rise, subtracting from total GDP.

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