The US economy shrank by 0.9 per cent during the second quarter of the year, further stoking fears the country is heading into a recession.
In gross domestic product data published on Thursday morning, the Bureau of Economic Analysis, part of the Commerce Department, posted a second straight quarterly contraction int the economy.
Back-to-back negative quarters constitute an informal definition of recession, but most economists point to a still-robust labor market, with 11 million job openings and an uncommonly low 3.6 per cent unemployment rate. They argue that a recession if one were to occur, is still a way off.
The report comes just a day after the US Federal Reserve raised its benchmark interest rate by 0.75 per cent for the second time in a row as it continues efforts to conquer the worst surge in inflation in four decades.
With the consumer price index for June having jumped 9.1 per cent from a year ago, the Fed is aiming for a notoriously difficult “soft landing” — an economic slowdown that manages to rein in rocketing prices without triggering a recession.
The strength of America’s job market, Federal Reserve Chair Jerome Powell said at a news conference on Wednesday, “makes you question the GDP data.”.
Asked whether he thought the US was in a recession, Mr Powell said he did not think it was, citing the “remarkably strong” labour market and adding “it doesn’t make sense” for the country to be in a recession right now.
Mr Powell also correctly noted that GDP data is often revised at a later date. In its press release on Thursday morning the BEA noted that the GDP estimate was based on source data that are either incomplete or subject to revision from the source agency and that the second estimate for the quarter will be released on 25 August.
Prior to the release of today’s data, forecasters surveyed by the data firm FactSet had estimated that the nation’s gross domestic product — the broadest measure of economic output — made a tepid annual gain of 0.8 per cent between the beginning of April and the end of June.
Today’s data, though still marking a fall in economic activity, is an improvement on the 1.6 per cent drop in the January-March quarter.
Still, such poor quarterly growth represents a drastic weakening from the 5.7 per cent growth the economy achieved last year.
That was the fastest calendar-year expansion since 1984, reflecting how vigorously the economy roared back from the brief but brutal pandemic recession of 2020.
Digging into the details from Thursday’s release, the second quarter decrease in real GDP reflected decreases in inventory investment, housing investment, federal government spending, state and local government spending, and business investment.
However, exports and consumer spending increased. Imports, which are a subtraction in the calculation of GDP, also increased.